UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Name of Registrant; State of Incorporation; Address of IRS Employer
Number Principal Executive Offices; and Telephone Number Identification Number
- ---------------- --------------------------------------------------------- -------------------------
1-16169 EXELON CORPORATION 23-2990190
(a Pennsylvania corporation)
10 South Dearborn Street - 37th Floor
P.O. Box 805379
Chicago, Illinois 60680-5379
(312) 394-4321
1-1839 COMMONWEALTH EDISON COMPANY 36-0938600
(an Illinois corporation)
10 South Dearborn Street - 37th Floor
P.O. Box 805379
Chicago, Illinois 60680-5379
(312) 394-4321
1-1401 PECO ENERGY COMPANY 23-0970240
(a Pennsylvania corporation)
P.O. Box 8699
2301 Market Street
Philadelphia, Pennsylvania 19101-8699
(215) 841-4000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Name of Each Exchange on
Title of Each Class Which Registered
- ------------------------------------------------------------------------------ -----------------------------
EXELON CORPORATION:
Common Stock, without par value New York, Chicago and
Philadelphia
COMMONWEALTH EDISON COMPANY:
Company-Obligated Mandatorily Redeemable Preferred Securities of New York
Subsidiary Trust Holding Solely Commonwealth Edison Company's
8.48% Subordinated Debt Securities and unconditionally guaranteed by
Commonwealth Edison Company
PECO ENERGY COMPANY:
First and Refunding Mortgage Bonds: 6-3/8% Series due 2005, and 6-1/2% New York
Series due 2003
i
Cumulative Preferred Stock, without par value: $4.68 Series, $4.40 New York
Series, $4.30 Series and $3.80 Series
Trust Receipts of PECO Energy Capital Trust II, each representing an New York
8.00% Cumulative Monthly Income Preferred Security, Series C, $25
stated value, issued by PECO Energy Capital, L.P. and unconditionally
guaranteed by PECO Energy Company
Trust Receipts of PECO Energy Capital Trust III, each representing a New York
7.38% Cumulative Preferred Security, Series D, $25 stated value, issued
by PECO Energy Capital, L.P. and unconditionally guaranteed by PECO
Energy Company
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMONWEALTH EDISON COMPANY:
Common Stock Purchase Warrants, 1971 Warrants and Series B Warrants
PECO ENERGY COMPANY:
Cumulative Preferred Stock, without par value: $7.48 Series and $6.12 Series
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) have been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrants' knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The estimated aggregate market value of the voting and non-voting common
equity held by nonaffiliates of each registrant as of March 1, 2002, was as
follows:
Exelon Corporation Common Stock, without par value $15,839,570,208
Commonwealth Edison Company Common Stock,
$12.50 par value No established market
PECO Energy Company Common Stock, without par value None
The number of shares outstanding of each registrant's common stock as
of March 1, 2002 was as follows:
Exelon Corporation Common Stock, without par value 321,419,850
Commonwealth Edison Company Common Stock,
$12.50 par value 127,016,373
PECO Energy Company Common Stock, without par value 170,478,507
ii
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of Exelon Corporation's Current Report on Form 8-K dated
February 28, 2002 containing consolidated financial statements and related
information for the year ended December 31, 2001, are incorporated by reference
into Parts I, II and IV of this Annual Report on Form 10-K. Portions of Exelon
Corporation's definitive Proxy Statement filed on March 13, 2002 relating to its
annual meeting of shareholders, are incorporated by reference into Part III of
this Annual Report on Form 10-K.
Portions of Commonwealth Edison Company's definitive Information
Statement to be filed prior to April 30, 2002, relating to its annual meeting of
shareholders, are incorporated by reference into Part III of this Annual Report
on Form 10-K.
Portions of PECO Energy Company's definitive Information Statement to
be filed prior to April 30, 2002, relating to its annual meeting of
shareholders, are incorporated by reference into Part III of this Annual Report
on Form 10-K.
This combined Form 10-K is separately filed by Exelon Corporation,
Commonwealth Edison Company and PECO Energy Company. Information contained
herein relating to any individual registrant is filed by such registrant in its
own behalf. Each registrant makes no representation as to information relating
to the other registrants.
iii
TABLE OF CONTENTS
PAGE NO.
--------
FORWARD LOOKING STATEMENTS 1
PART I
ITEM 1. BUSINESS 2
General 2
Energy Delivery 3
Generation 11
Enterprises 26
Employees 27
Environmental Regulation 28
Other Subsidiaries of ComEd and PECO with Publicly
Held Securities 32
Executive Officers of the Registrants 34
ITEM 2. PROPERTIES 36
ITEM 3. LEGAL PROCEEDINGS 39
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS 42
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS 43
ITEM 6. SELECTED FINANCIAL DATA 44
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 47
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 81
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 84
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE 145
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT 146
ITEM 11. EXECUTIVE COMPENSATION 146
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT 147
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 148
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K 149
SIGNATURES 166
iv
FORWARD-LOOKING STATEMENTS
Except for the historical information contained herein, certain of the
matters discussed in this Report are forward-looking statements that are subject
to risks and uncertainties. The factors that could cause actual results to
differ materially include those discussed herein as well as those listed in ITEM
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations - Outlook and in ITEM 8. Financial Statements and Supplementary Data,
Notes to Consolidated Financial Statements; Exelon - Note 20; ComEd - Note 16;
and PECO Note 18 and other factors discussed in Exelon Corporation (Exelon),
Commonwealth Edison Company (ComEd) and PECO Energy Company's (PECO) filings
with the SEC. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date of this Report.
Exelon, ComEd and PECO undertake no obligation to publicly release any revision
to these forward-looking statements to reflect events or circumstances after the
date of this Report.
1
PART I
ITEM 1. BUSINESS.
GENERAL
Exelon Corporation (Exelon) was incorporated in Pennsylvania in
February 1999. On October 20, 2000, Exelon became the parent corporation for
each of Commonwealth Edison Company (ComEd) and PECO Energy Company (PECO) as a
result of the completion of the transactions contemplated by an Agreement and
Plan of Exchange and Merger, as amended, among PECO, Unicom Corporation (Unicom)
and Exelon (Merger). The Merger was accounted for using the purchase method of
accounting.
During January 2001, Exelon undertook a restructuring to separate its
generation and other competitive businesses from its regulated energy delivery
business at ComEd and PECO. As part of the restructuring, the generation-related
operations and assets and liabilities of ComEd were transferred to Exelon
Generation Company, LLC (Generation). Also, as part of the restructuring, the
non-regulated operations and related assets and liabilities of PECO,
representing PECO's generation and enterprises business segments, were
transferred to Generation and Exelon Enterprises Company, LLC (Enterprises),
respectively. Additionally, certain operations and assets and liabilities of
ComEd and PECO were transferred to Exelon Business Services Company (BSC).
Exelon, through its subsidiaries, operates in three business segments:
o Energy Delivery, consisting of the retail electricity distribution and
transmission businesses of ComEd in northern Illinois and PECO in
southeastern Pennsylvania and the natural gas distribution business of PECO
in the Pennsylvania counties surrounding the City of Philadelphia.
o Generation, consisting of electric generating facilities, energy marketing
operations and equity interests in Sithe Energies, Inc. (Sithe) and AmerGen
Energy Company, LLC (AmerGen).
o Enterprises, consisting of competitive retail energy sales, energy and
infrastructure services, communications and other investments weighted
towards the communications, energy services and retail services industries.
Exelon's principal executive offices are located at 10 South Dearborn
Street, Chicago, Illinois 60603, and its telephone number is 312-394-4321. ComEd
was organized in the State of Illinois in 1913 as a result of the merger of
Cosmopolitan Electric Company into the original corporation named Commonwealth
Edison Company, which was incorporated in 1907. ComEd's principal executive
offices are located at 10 South Dearborn Street, Chicago, Illinois 60603 and its
telephone number is 312-394-4321. PECO was incorporated in Pennsylvania in 1929.
PECO's principal executive offices are located at 2301 Market Street,
Philadelphia, Pennsylvania 19101-8699 and its telephone number is 215-841-4000.
Exelon and various of its subsidiaries are subject to Federal and state
regulation. Exelon is a registered holding company under the Public Utility
Holding Company Act of 1935 (PUHCA). ComEd is a public utility under the
Illinois Public Utilities Act subject to regulation by the Illinois Commerce
Commission (ICC). PECO is a public utility under the Pennsylvania Public Utility
Code subject to regulation by the Pennsylvania
2
Public Utility Commission (PUC). PECO, ComEd and Generation are electric
utilities under the Federal Power Act subject to regulation by the Federal
Energy Regulatory Commission (FERC). Specific operations of Exelon are also
subject to the jurisdiction of various other Federal, state, regional and local
agencies, including the United States Nuclear Regulatory Commission (NRC).
As a registered holding company, Exelon and its subsidiaries are
subject to a number of restrictions under PUHCA. These restrictions generally
involve financing, investments and affiliate transactions. Under PUHCA, Exelon
and its subsidiaries cannot issue debt or equity securities or guaranties
without approval of the Securities and Exchange Commission (SEC) or in some
circumstances in the case of ComEd and PECO, the ICC or the PUC, respectively.
Exelon currently has SEC approval to issue up to an aggregate of $4 billion in
common stock, preferred securities, long-term debt and short-term debt, and to
issue up to $4.5 billion in guaranties. PUHCA also limits the businesses in
which Exelon may engage and the investments that Exelon may make. With limited
exceptions, Exelon may only engage in traditional electric and gas utility
businesses and other businesses that are reasonably incidental or economically
necessary or appropriate to the operations of the utility business. The
exceptions include Exelon's ability to invest in exempt telecommunications
companies, in exempt wholesale generating businesses and foreign utility
companies (these investments are capped at $4 billion in the aggregate), in
energy-related companies (as defined in SEC rules, and subject to a cap on these
investments of 15% of Exelon's consolidated capitalization), and in other
businesses, subject to SEC approval. In addition, PUHCA requires that all of a
registered holding company's utility subsidiaries constitute a single system
that can be operated in an efficient, coordinated manner. For additional
information about restrictions on the payment of dividends and other effects of
PUHCA on Exelon and its subsidiaries, see ITEM 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations - Exelon.
ENERGY DELIVERY
Energy Delivery consists of Exelon's regulated energy delivery
operations conducted by ComEd and PECO.
ComEd is engaged principally in the purchase, transmission,
distribution and sale of electricity to a diverse base of residential,
commercial, industrial and wholesale customers in northern Illinois. ComEd is a
public utility under the Illinois Public Utilities Act. Consequently, ComEd is
subject to regulation by the ICC as to rates and charges, issuance of most of
its securities, service and facilities, classification of accounts, transactions
with affiliated interests, as defined in the Illinois Public Utilities Act, and
other matters. ComEd is also subject to regulation by FERC as to transmission
rates and certain other aspects of its business, including interconnections and
sales of transmission related assets.
ComEd's retail service territory has an area of approximately 11,300
square miles and an estimated population of approximately 8 million as of
December 31, 2001. The service territory includes the City of Chicago, an area
of about 225 square miles with an estimated population of approximately 3
million. ComEd had approximately 3.6 million customers at December 31, 2001.
ComEd's franchises are sufficient to permit it to engage in the
business it now conducts. ComEd's franchise rights are generally nonexclusive
rights documented in agreements and, in some cases, certificates of public
convenience issued by the ICC. With few exceptions, the franchise rights have
stated expiration dates ranging from 2002 to 2050 and subsequent years.
3
PECO is engaged principally in the purchase, transmission, distribution
and sale of electricity to residential, commercial, industrial and wholesale
customers and in the purchase, distribution and sale of natural gas to
residential, commercial and industrial customers. PECO is a public utility under
the Pennsylvania Public Utility Code. As a result, PECO is subject to regulation
by the PUC as to electric distribution rates, retail gas rates, issuances of
securities and certain other aspects of PECO's operations. PECO is also subject
to regulation by FERC as to transmission rates and certain other aspects of its
business, including interconnections and sales of transmission related assets.
PECO's traditional retail service territory covers 2,107 square miles
in southeastern Pennsylvania. PECO provides electric delivery service in an area
of 1,972 square miles, with a population of approximately 3.8 million, including
1.5 million in the City of Philadelphia. Natural gas service is supplied in a
1,625 square mile area in southeastern Pennsylvania adjacent to Philadelphia,
with a population of 2.3 million. PECO delivers electricity to approximately 1.5
million customers and natural gas to approximately 440,000 customers.
PECO has the necessary franchise rights to furnish electric and gas
service in the various municipalities or territories in which it now supplies
such services. PECO's franchise rights, which are generally nonexclusive rights,
consist of charter rights and certificates of public convenience issued by the
PUC and/or "grandfather rights". Such franchise rights are generally unlimited
as to time.
As a result of Exelon's restructuring to separate its regulated and
competitive businesses, effective January 1, 2001, both ComEd and PECO
transferred their assets and liabilities unrelated to energy delivery to other
subsidiaries of Exelon. In the case of ComEd, the assets and liabilities
transferred included nuclear generation and wholesale power marketing operations
and some administrative functions. In the case of PECO, the assets and
liabilities transferred related to nuclear, fossil and hydroelectric generation
and wholesale power marketing; unregulated ventures and activities, including
communications, infrastructure services and unregulated gas and electric sales
activities; and administrative, information technology and other support for
other business activities of Exelon and its subsidiaries.
Energy Delivery's kilowatthour (kWh) sales and load are generally
higher, primarily during the summer periods but also during the winter periods,
when temperature extremes create demand for either summer cooling or winter
heating. ComEd's highest peak load experienced to date occurred on August 9,
2001 and was 21,574 megawatts (MWs), and the highest peak load experienced to
date during a winter season occurred on December 20, 1999 and was 14,484 MWs.
PECO's highest peak load experienced to date occurred on July 6, 1999 and was
7,959 MWs; and the highest peak load experienced to date during a winter season
occurred on January 17, 2000 and was 6,135 MWs.
RETAIL ELECTRIC SERVICES
Electric utility restructuring legislation was adopted in Pennsylvania
in December 1996 and in Illinois in December 1997. Both states, through their
regulatory agencies, established a phased approach to competition, allowing
customers to choose an alternative electric generation supplier; required rate
reductions and imposed caps on rates during a transition period; and allowed the
collection of competitive transition charges (CTCs) from customers to recover
costs that might not otherwise be recovered in a competitive market (stranded
costs). Under the restructuring initiatives adopted at the Federal and state
levels, the role of electric utilities in the supply and delivery of energy is
changing.
4
Provider of last resort (POLR) obligations refer to the obligation of a
utility to provide generation services (i.e., power and energy) to those
customers who do not take service from an alternative generation supplier or who
choose to come back to the utility after taking service from an alternative
supplier. Because the choice lies with the customer, these obligations make it
difficult for the utility to predict and plan for the level of customers and
associated energy demand. If these obligations remain unchanged, the utility
could be required to maintain reserves sufficient to serve 100% of the service
territory load at a tariffed rate on the chance that customers who switched to
new suppliers decide to come back to the utility as a "last resort" option. A
significant over or under estimation of such reserves may cause commodity price
risks for suppliers. ComEd and PECO continue to be obligated to provide a
reliable delivery system under cost-based rates.
The rates for the generation service provided by ComEd and PECO are
subject to rate caps or freezes during all or a portion of the transition
periods. ComEd has entered into a long-term power purchase agreement (PPA) with
Generation to obtain sufficient power at fixed rates. PECO has entered into a
long-term PPA with Generation to obtain sufficient power at the rates PECO is
allowed to charge to serve customers who do not choose an alternate generation
supplier.
ComEd. Under the Illinois legislation, as of December 31, 2000, all
non-residential customers were eligible to choose a new electric supplier or
elect the power purchase option (PPO), which allows the purchase of electric
energy from ComEd at market-based prices. As of December 31, 2001, approximately
18,700 non-residential customers, representing approximately 22% of ComEd's
annual retail kWh sales, had elected to receive their electric energy from an
alternative retail electric supplier (ARES) or had chosen the PPO. Customers who
receive energy from an ARES continue to pay a delivery charge. ComEd's
residential customers become eligible to choose a new electric supplier in May
2002.
In addition to retail competition for generation services, the Illinois
legislation provided for residential base rate reductions, a sharing with
customers of any earnings over a defined threshold and a base rate freeze,
reflecting the residential base rate reductions, through January 1, 2005. A 15%
residential base rate reduction became effective on August 1, 1998 and a further
5% residential base rate reduction became effective in October 2001. A utility
may request a rate increase during the rate freeze period only when necessary to
ensure the utility's financial viability. Under the Illinois legislation, if the
earned return on common equity of a utility during this period exceeds an
established threshold, one-half of the excess earnings must be refunded to
customers. The threshold rate of return on common equity is based on the 30-Year
Treasury Bond rate plus 8.5% in the years 2000 through 2004. Earnings for
purposes of ComEd's threshold include ComEd's net income calculated in
accordance with generally accepted accounting principles and reflect the
amortization of regulatory assets and goodwill. As a result of the Illinois
legislation, at December 31, 2001, ComEd had a regulatory asset with an
unamortized balance of $277 million that it expects to fully recover and
amortize by the end of 2004. Consistent with the provisions of the Illinois
legislation, regulatory assets may be recovered at amounts that provide ComEd an
earned return on common equity within the Illinois legislation earnings
threshold. The earned return on common equity and the threshold return on common
equity for ComEd are each calculated on a two-year average basis. ComEd did not
trigger the earnings sharing provision in 2000 or 2001 and does not currently
expect to trigger the earnings sharing provisions in the years 2002 through
2004.
The Illinois legislation also provided for the collection of a CTC from
customers who choose to purchase electric energy from an ARES or elect the PPO
during a transition period that
5
extends through 2006. The CTC, which was established as of October 1, 1999 and
is applied on a cents per kWh basis, considers the revenue that would have been
collected from a customer under tariffed rates, reduced by the revenue the
utility will receive for providing delivery services to the customer, the market
price for electricity and a defined mitigation factor, which represents the
utility's opportunity to develop new revenue sources and achieve cost savings.
The CTC allows ComEd to recover some of its costs that might otherwise be
unrecoverable under market-based rates.
As part of a settlement agreement between ComEd and the City of Chicago
relating to ComEd's Chicago franchise agreement, ComEd and Chicago agreed to a
revised combination of ongoing work under the franchise agreement and new
initiatives that total approximately $1 billion in defined transmission and
distribution expenditures by ComEd to improve electric service in Chicago, of
which approximately $940 million has been expended through December 31, 2001.
The Illinois legislation also committed ComEd to spend at least $2 billion
during the period 1999 through 2004 on transmission and distribution facilities
outside of Chicago, which has been expended as of December 31, 2001. In
addition, ComEd conducted an extensive evaluation of the reliability of its
transmission and distribution systems in response to several outages in the
summer of 1999. As a result of the evaluation, ComEd has increased its capital
and operating and maintenance expenditures on its transmission and distribution
facilities in order to improve their reliability.
As a result of ComEd's commitments to improve the reliability of its
transmission and distribution system, ComEd expects its capital expenditures
will exceed depreciation on its rate base assets through at least 2002. The base
rate freeze will generally preclude rate recovery of and on such investments
prior to January 1, 2005. Unless ComEd can offset the additional carrying costs
against cost savings, its return on investment will be reduced during the period
of the rate freeze and until rate increases are approved authorizing a return of
and on this new investment.
In addition, the Illinois legislation provides that an electric
utility, such as ComEd, will be liable for actual damages suffered by customers
in the event of a continuous power outage of four hours or more affecting 30,000
or more customers and provides for reimbursement of governmental emergency and
contingency expenses incurred in connection with any such outage. The
legislation bars recovery of consequential damages. The legislation also allows
an affected utility to seek relief from these provisions from the ICC where the
utility can show that the cause of the outage was unpreventable damage due to
weather events or conditions, customer tampering or third party causes.
The Illinois legislation also allows a portion of ComEd's future
revenues to be segregated and used to support the issuance of securities by
ComEd or a special purpose financing subsidiary. The proceeds, net of
transaction costs, from such securities issuances must be used to refinance
outstanding debt or equity or for certain other limited purposes. The total
amount of such securities that may be issued is approximately $6.8 billion. In
December 1998, special purpose financing subsidiaries of ComEd issued $3.4
billion of notes. For additional information, see Other Subsidiaries of ComEd
and PECO with Publicly Held Securities below and ITEM 8. Financial Statements
and Supplementary Data - ComEd, Note 10 of Notes to Consolidated Financial
Statements.
PECO. Under the Pennsylvania Electricity Generation Customer Choice and
Competition Act (Competition Act), all of PECO's retail electric customers have
the right to choose their generation suppliers. At December 31, 2001,
approximately 28% of PECO's residential load, 6% of its small commercial and
industrial load and 5% of its large commercial and industrial load were
purchasing generation service from alternative suppliers.
6
In addition to retail competition for generation services, PECO's
settlement of its restructuring case mandated by the Competition Act required
PECO to provide generation services to customers who do not or cannot choose an
alternate supplier through December 31, 2010 and established caps on generation
and distribution rates. The 1998 settlement also authorized PECO to recover $5.3
billion of stranded costs and to securitize up to $4.0 billion of its stranded
cost recovery.
Under the 1998 settlement, PECO's distribution rates were capped
through June 30, 2005 at the level in effect on December 31, 1996. Generation
rates, consisting of the charge for stranded cost recovery and a shopping credit
or capacity and energy charge, were capped through December 31, 2010. For 2002,
the generation rate cap is $0.0698 per kWh, increasing to $0.0751 per kWh in
2006 and $0.0801 per kWh in 2007. The rate caps are subject to limited
exceptions, including significant increases in Federal or state taxes or other
significant changes in law or regulations that would not allow PECO to earn a
fair rate of return.
Pursuant to a settlement related to PECO's request for authorization to
securitize an additional $1 billion of its stranded cost recovery, PECO provided
its customers with additional rate reductions of $60 million in 2001. Under the
settlement agreement entered into by PECO in 2000 relating to the PUC's approval
of the Merger, PECO agreed to $200 million in aggregate rate reductions for all
customers over the period January 1, 2002 through 2005 and extended the rate cap
on distribution rates through December 31, 2006.
PECO has been authorized to recover stranded costs of $5.3 billion over
a twelve-year period ending December 31, 2010 with a return on the unamortized
balance of 10.75%. PECO's recovery of stranded costs is based on the level of
transition charges established in the settlement of PECO's restructuring case
and the projected annual retail sales in PECO's service territory. Recovery of
transition charges for stranded costs and PECO's allowed return on its recovery
of stranded costs are included in operating revenue.
As a mechanism for utilities to recover their allowed stranded costs,
the Competition Act provides for the imposition and collection of non-bypassable
CTCs on customers' bills. CTCs are assessed to and collected from all retail
customers who have been assigned stranded cost responsibility and access the
utilities' transmission and distribution systems. As the CTCs are based on
access to the utility's transmission and distribution system, they will be
assessed regardless of whether such customer purchases electricity from the
utility or an alternate electric generation supplier. The Competition Act
provides, however, that the utility's right to collect CTCs is contingent on the
continued operation at reasonable availability levels of the assets for which
the stranded costs were awarded, except where continued operation is no longer
cost efficient because of the transition to a competitive market.
In consideration with the settlement agreement, entered into by PECO
with the PUC, PECO developed certain forward-looking financial information
during 1998, which was part of this settlement agreement with the PUC. The
following table shows the estimated average levels of stranded cost recovery and
the amortization of the remaining portion of PECO's authorized stranded cost
recovery ($4.9 billion at December 31, 2001) for the years 2002 through 2010,
based on estimated 0.8% annual sales growth assumed in the 1998 settlement of
PECO's restructuring case.
7
PECO Annual Stranded Cost
Amortization And Return
Stranded Cost Revenue Excluding
Recovery Gross Receipts Tax
Year Annual Sales (1) Charge (2)
----------------------------------------------------
Total Return @ 10.75% Amortization
- ----- ----------------- --------------- ---------- ----------------- ---------------
MWh $/kWh ($000) ($000) ($000)
2002 34,381,485 0.0251 825,004 516,869 308,135
2003 34,656,537 0.0247 818,352 482,401 335,951
2004 34,933,789 0.0243 811,540 444,798 366,742
2005 35,213,260 0.0240 807,933 403,555 404,378
2006 35,494,966 0.0266 902,623 353,070 549,553
2007 35,778,925 0.0266 909,844 290,627 619,217
2008 36,065,157 0.0266 917,123 220,312 696,811
2009 36,353,678 0.0266 924,459 141,229 783,231
2010 36,644,507 0.0266 931,855 52,381 879,474
- ----- ----------------- --------------- ---------- ----------------- ---------------
(1) Subject to reconciliation of actual sales and collections.
(2) Subject to periodic adjustments for over- or under- recovery.
Under the Competition Act, licensed entities, including alternate
electric generation suppliers, may act as agents to provide a single bill and
provide associated billing and collection services to retail customers located
in PECO's retail electric service territory. In that event, the alternative
supplier or other third party replaces the customer as the obligor with respect
to the customer's bill and PECO generally has no right to collect such
receivable from the customer. Third-party billing would change PECO's customer
profile (and risk of non-payment by customers) by replacing multiple customers
with the entity providing third-party billing for those customers. PUC-licensed
entities may also finance, install, own, maintain, calibrate and remotely read
advanced meters for service to retail customers in PECO's retail electric
service territory. To date, no third parties are providing billing of PECO's
charges to customers or advanced metering. Only PECO can physically disconnect
or reconnect a customer's distribution service.
As permitted by the Competition Act and the 1998 settlement of its
restructuring case, PECO securitized $1 billion and $4 billion of its stranded
cost recovery in 2000 and 1999, respectively, by the issuance of transition
bonds (Transition Bonds) through a special purpose financing entity. As required
by the Competition Act, the proceeds from the securitizations were applied to
reduce stranded costs, including related capitalization of PECO. In March 2001,
approximately $805 million of the first series of Transition Bonds were
refinanced. For additional information, see Other Subsidiaries of ComEd and PECO
with Publicly Held Securities below and ITEM 8. Financial Statements and
Supplementary Data - PECO, Note 11 of Notes to Consolidated Financial
Statements.
PECO's settlement of its restructuring case included a number of
provisions designed to encourage competition for generation services. Shopping
credits for generation service may provide an economic incentive for customers
to choose an alternate supplier. Effective January 1, 2001, PECO agreed to
assign 20% of its non-shopping residential customers to competitive default
service provided by one or more alternate suppliers. If on January 1, 2003, 50%
of PECO's residential and commercial customers are not obtaining generation
services from
8
alternate generation suppliers, than non-shopping customers will
be assigned to alternate generation suppliers to reach that level.
On November 29, 2000, the PUC approved PECO's bilateral contract with
New Power Company (New Power) to move 22% of PECO's non-shopping residential
customers to New Power for competitive default generation service. Under this
contract, New Power agreed to provide generation services through January 2004,
at specified discounted rates, to nearly 300,000 residential customers of PECO
who were taking their generation service from PECO. On February 22, 2002 New
Power sent PECO a notice of intent to withdraw from the market and return the
New Power customers to PECO in May 2002.
In addition to the New Power contract, PECO has also entered into a
contract with Green Mountain Energy Company (Green Mountain) to assign 50,000 of
PECO's non-shopping residential customers to Green Mountain for competitive
default generation service, on the same terms and conditions as the New Power
contract. On February 21, 2001, the PUC approved the Green Mountain contract.
Beginning in May 2001, Green Mountain enrolled approximately 44,000 customers
and as of December 31, 2001, approximately 13,000 customers, or 25%, have opted
to return to PECO.
TRANSMISSION SERVICES
Energy Delivery provides wholesale and unbundled retail transmission
service under rates established by FERC. FERC has used its regulation of
transmission to encourage competition for wholesale generation services and the
development of regional structures to facilitate regional wholesale markets. In
December 1999, FERC issued Order No. 2000 (Order 2000) requiring jurisdictional
utilities to file a proposal to form a regional transmission organization (RTO)
or, alternatively, to describe efforts to participate in or work toward
participating in an RTO or explain why they were not participating in an RTO.
Order 2000 is generally designed to separate the governance and operation of the
transmission system from generation companies and other market participants.
ComEd. In response to Order 2000, ComEd and several other utilities
filed a business plan in August 2001 with FERC describing the creation of
Alliance Transmission Company, LLC (Alliance Transco or Alliance) as an
independent, for-profit transmission company. In connection with the process
leading to the FERC filing, ComEd issued a non-binding declaration of intent to
divest to Alliance Transco transmission facilities having a gross book value in
excess of $1 billion. In a related action, ComEd entered into a non-binding
memorandum of understanding with National Grid USA (National Grid), the proposed
manager of Alliance Transco, setting forth general principles relating to the
divestiture and Alliance Transco as a basis for further discussion.
On December 20, 2001, FERC issued several orders relating to RTOs
operating in the Midwest. In those orders, FERC, among other things, approved
Midwest Independent Transmission System Operator, Inc. (MISO) as an RTO and
found that Alliance Transco lacked sufficient scope to be a stand-alone RTO.
FERC also directed the Alliance participants to explore with the MISO how the
participants' business plan can be accommodated with the MISO operational
framework and dismissed the business plan filed in August 2001 by the Alliance
participants. In addition, FERC determined that National Grid is not a market
participant within the meaning of Order 2000 and, thus, is eligible to become
the managing member of Alliance Transco if that entity is formed. FERC further
directed the Alliance participants to file a statement of their plans to join an
RTO, including timeframes, within 60 days. As a result of the
9
FERC orders, representatives of ComEd and the other Alliance participants are
exploring various RTO participation options and are meeting with representatives
of MISO to explore how the Alliance Transco may operate under the MISO. The
Alliance participants, including ComEd, filed their discussions with MISO at the
FERC in February 2002, noting progress as to some issues, but also noted
negotiations were ongoing. The Alliance participants also noted that they were
exploring the possibility of filing their business plan within an RTO other than
MISO.
Following further discussions, the Alliance participants and the
National Grid concluded that further negotiations with the MISO required policy
resolutions from FERC. Accordingly, on March 6, 2002, the Alliance participants
and National Grid submitted a petition to FERC for a declaratory order finding
that the proposed policy resolutions contained in the petition provide an
appropriate basis for the participation of the Alliance participants in the
MISO. The filing requests FERC to approve a proposed division of
responsibilities between National Grid and the MISO. It also seeks approval to
use existing systems for startup of operations in order to speed up initial
operations. It requests approval for the Alliance participants to purchase
services from the MISO at incremental costs, and that the MISO refund the $60
million withdrawal fee, plus interest, to ComEd, Illinois Power Company
(Illinois Power), and Ameren Corporation (Ameren), of which ComEd's portion is
$36 million. The $36 million was paid to the MISO by ComEd in May 2001 under a
FERC approved settlement agreement allowing ComEd, Illinois Power, and Ameren to
withdraw from the MISO to join the Alliance Transco.
PECO. PECO provides regional transmission service pursuant to a
regional open-access transmission tariff filed by it and the other transmission
owners who are members of PJM Interconnection, LLC (PJM). PJM is a power pool
that integrates, through central dispatch, the generation and transmission
operations of its member companies across a 50,000 square mile territory. Under
the PJM tariff, transmission service is provided on a region-wide, open-access
basis using the transmission facilities of the PJM members at rates based on the
costs of transmission service. PJM's Office of Interconnection is the
Independent System Operator (ISO) for PJM (PJM ISO) and is responsible for
operation of the PJM control area and administration of the PJM open-access
transmission tariff. PECO and the other transmission owners in PJM have turned
over control of their transmission facilities to the PJM ISO. The PJM ISO and
the transmission owners who are members of PJM, including PECO, have filed with
FERC for approval of PJM as an RTO. FERC has conditionally approved the PJM RTO.
GAS
Historically, PECO's gas sales and gas transportation revenues were
derived pursuant to rates regulated by the PUC. Since 1984, large commercial and
industrial customers have been able to choose their gas suppliers. The PUC
established, through regulated proceedings, the base rates that PECO may charge
for gas service in Pennsylvania. PECO's gas rates are subject to quarterly
adjustments designed to recover or refund the difference between the actual cost
of purchased gas and the amount included in base rates and to recover or refund
increases or decreases in certain state taxes not recovered in base rates.
Effective July 1, 2000, the Pennsylvania Natural Gas Choice and
Competition Act expanded the choice of gas suppliers to residential and small
commercial customers and eliminated the 5% gross receipts tax on gas
distribution companies' sales of gas. Approximately one-third of PECO's current
total yearly throughput is supplied by third parties. The Act permits gas
distribution companies to continue to make regulated sales of gas, at cost, to
their customers. The Act does not deregulate the transportation service provided
by gas distribution companies,
10
which remains subject to rate regulation. Gas
distribution companies continue to provide billing, metering, installation,
maintenance and emergency response services.
PECO's natural gas supply is provided by purchases from a number of
suppliers for terms of up to five years. These purchases are delivered under
several long-term firm transportation contracts. PECO's aggregate annual
entitlement under these firm transportation contracts is 45 million dekatherms.
Peak gas is provided by PECO's liquefied natural gas facility and propane-air
plant. PECO also has under contract 21.3 million dekatherms of underground
storage through service agreements. Natural gas from underground storage
represents approximately 34% of PECO's 2001-2002 heating season supplies.
CONSTRUCTION BUDGET
The following table shows Exelon's most recent estimate of capital
expenditures for plant additions and improvements for ComEd and PECO for 2002
(in millions):
ComEd PECO
- -------------------------------------------------------------------------------
Transmission and Distribution $712 $200
Gas -- 69
Other 69 10
---- ----
Total $781 $279
==== ====
Approximately two thirds of ComEd's 2002 budgeted capital expenditures and one
half of PECO's 2002 budgeted capital expenditures are for additions to or
upgrades of existing facilities, including reliability improvements. The
remainder of the capital expenditures support customer and load growth.
GENERATION
GENERAL
Generation is one of the largest competitive electric generation
companies in the United States, as measured by owned and controlled MWs.
Generation combines its large, low-cost generation fleet with an experienced
wholesale power marketing operation. It directly owns generation assets in the
Mid-Atlantic and Midwest regions with a net capacity of 19,715 MW, including
14,250 MW of nuclear capacity, and also controls another 16,245 MW of capacity
in the Midwest, Southeast and South Central regions through long-term contracts.
In addition to its owned generation facilities, Generation has acquired
a 49.9% interest in Sithe with put and call options, beginning in December 2002,
to purchase the remaining 50.1% interest. Sithe develops, owns and operates 27
generation facilities in North America. Currently, Sithe has 3,371 MW of
capacity in operation and 5,051 MW under construction or in advanced
development. Generation also owns a 50% interest in AmerGen, a joint venture
with British Energy plc. AmerGen owns three nuclear stations with total
generation capacity of 2,398 MW.
Generation's wholesale marketing unit, Power Team, is a major wholesale
marketer of energy that uses Generation's generation portfolio, transmission
rights and expertise to ensure delivery of generation to Generation's wholesale
customers under long-term and short-term contracts. Power Team is responsible
for supplying the load requirements of ComEd and PECO and markets the remaining
energy in the wholesale and spot markets.
11
GENERATING RESOURCES
The generating resources of Generation, including its ownership share
of AmerGen and Sithe, consist of the following:
Type of Capacity MW
- ---------------- -------
Owned Generation Assets (1),(2)
Nuclear 14,250
Fossil 3,881
Hydro 1,584
------
19,715
Long-term Contracts (3) 16,245
AmerGen and Sithe (2) 2,881
------
Available Resources 38,841
Under Construction or in Advanced Development (2) 2,521
------
Total Generating Resources 41,362
======
(1) See "Fuel" for sources of fuels used in electric generation.
(2) Based on Generation's ownership.
(3) Contracts range from 1 to 29 years.
Generation's owned generation assets are primarily the nuclear
generation stations in the Midwest region that were acquired from ComEd and the
nuclear, fossil and hydroelectric stations in the Mid-Atlantic region that were
acquired from PECO.
Generation has a 49.9% interest in Sithe and a 50% interest in AmerGen.
Sithe, an independent power producer, owns and operates 27 power generation
facilities in North America with approximately 3,371 MW of net generation
capacity and has approximately 5,051 MW of capacity under construction or in
advanced development. AmerGen owns three nuclear plants with a total capacity of
2,398 MW.
The owned generating resources of Generation are located primarily in
the Midwest (approximately 50% of capacity) and the Mid Atlantic and New England
regions (approximately 49% of capacity). AmerGen's generating resources are also
in the Midwest and the Mid Atlantic regions. Sithe's generating resources are
primarily in the New England region.
In December 2001, Generation agreed to purchase two generation plants
located in the Dallas Fort-Worth metropolitan area from TXU Corporation (TXU) to
expand its presence in the Texas region. The $443 million purchase of the two
natural-gas and oil-fired plants, to be financed through available cash and
borrowings from Exelon, will add 2,334 MW capacity. The transaction includes a
purchase power and tolling agreement for TXU Energy to purchase power during the
months of May through September until September 2006. The closing of the
acquisition is subject to certain contingencies including the receipt of the
necessary regulatory approvals and is anticipated to occur in the second quarter
of 2002.
NUCLEAR FACILITIES. Generation has direct ownership interests in eight
nuclear generating stations, consisting of 16 units with 14,250 MW of capacity
(Exelon share). For additional information, see ITEM 2. Properties. All of the
nuclear generating stations are operated by Generation, with the exception of
Salem Generating Station (Salem), which is operated by PSE&G Nuclear, LLC. In
addition, AmerGen operates three nuclear generating stations
12
consisting of three units with 2,398 MW of capacity, of which Generation's
interest is 1,199 MW.
In 2001, approximately 54% of Generation's electric supply was
generated from the nuclear generating facilities. During 2001 and 2000, the
nuclear generating facilities operated by Generation and AmerGen, operated at
weighted average capacity factors of 94.4% and 93.8%, respectively. See the
AmerGen section, which follows within ITEM 1. Business-Generation, for further
discussion of the three nuclear facilities owned by AmerGen. Generation is in
the process of increasing the capacity of its nuclear fleet through power
uprates and plant modifications and refinements. Power uprate projects involve
equipment and instrumentation modifications, which require NRC approval. These
power uprate projects have the potential of adding up to 885 MW of capacity by
the end of 2003. Generation is also pursuing other capacity additions through
plant modifications and refinements of several nuclear units that have the
potential of adding between 60 MW and 90 MW of capacity.
In 2001, Generation completed the purchase of an additional 3.755%
interest in the Peach Bottom Station from Atlantic City Electric Company. Total
cash paid for the additional interest, including nuclear fuel, was $7 million.
As part of this purchase, nuclear decommissioning funds of $29 million were also
transferred to Generation. Generation is now a 50% owner of Peach Bottom.
LICENSES. Exelon has 40-year operating licenses for each of its nuclear
units. Generation applied to the NRC in July 2001 for renewal of the Peach
Bottom 2 and 3 licenses and expects to apply for the extension of the operating
license for Dresden 2 and 3 and Quad Cities in 2003. The operating license
renewal process takes approximately four to five years from the commencement of
the project at a site until completion of the NRC's review. The NRC review
process takes approximately two years from the docketing of an application. Each
requested license extension is expected to be for 20 years beyond the current
license expiration. Depreciation provisions are based on the estimated useful
lives of the units, which assume the extension of these licenses for all of the
nuclear generating stations. The following table summarizes current operating
license expiration dates for Generation's nuclear facilities in service.
In-Service Current License
Station Unit Date Expiration
- ------- ---- ------------ ---------------
Braidwood 1 1988 2026
2 1988 2027
Byron 1 1985 2024
2 1987 2026
Dresden 2 1970 2009
3 1971 2011
LaSalle 1 1984 2022
2 1984 2023
Quad Cities 1 1973 2012
2 1973 2012
Limerick 1 1986 2024
2 1990 2029
Peach Bottom 2 1974 2013
3 1974 2014
Salem 1 1977 2016
2 1981 2020
13
REGULATION OF NUCLEAR POWER GENERATION AND SECURITY. Generation is
subject to the jurisdiction of the NRC with respect to its nuclear generating
stations. The NRC subjects nuclear generating stations to continuing review and
regulation covering, among other things, operations, maintenance, emergency
planning, security, environmental and radiological aspects of those stations.
The NRC may modify, suspend or revoke licenses and impose civil penalties for
failure to comply with the Atomic Energy Act, the regulations under such Act or
the terms of such licenses. Changes in regulations by the NRC that require a
substantial increase in capital expenditures for nuclear generating facilities
or that result in increased operating costs of nuclear generating units could
adversely affect Exelon and its results of operations.
The NRC has revamped its inspection, assessment and enforcement
programs for commercial nuclear power plants. The new oversight process uses
objective, timely and safety-significant criteria in assessing performance,
while seeking to effectively and efficiently regulate the industry. It also
takes into account improvements in the performance of the nuclear industry over
the past twenty years. Nuclear plant performance is measured by a combination of
objective performance indicators and by the NRC inspection program. These are
closely focused on those plant activities having the greatest impact on safety
and overall risk. In addition, the NRC conducts periodic reviews of the
effectiveness of each operator's programs to identify and correct problems. The
inspection program is designed to verify the accuracy of performance indicator
information and to assess performance based on safety cornerstones that include:
o initiating events;
o mitigating systems;
o integrity of barriers to release of radioactivity;
o emergency preparedness;
o occupational radiation safety;
o public radiation safety; and
o physical protection.
The NRC evaluates licensee performance by analyzing two distinct
inputs: inspection findings resulting from the NRC inspection program and
performance indicators reported by the licensees on a quarterly basis.
NRC reactor oversight results for the fourth quarter of 2001 indicate
performance at levels satisfactory enough to receive routine NRC oversight.
With respect to nuclear power plant security issues, in response to the
events of September 11, 2001, the NRC issued Safeguards and Threat Advisories to
all nuclear power plant licensees, including Generation, requesting that they
place their facilities on highest alert security status. In response to the NRC
Advisories and on its own initiative, Exelon also implemented enhanced security
measures, such as increased guard forces, the erection of additional physical
barriers, and heightened communication with authorities at all levels of
government. In addition to the Advisories, the NRC began an initiative to
perform a "top to bottom" review of its safeguards and security programs and
requirements in light of the events of September 11.
On February 25, 2002, the NRC issued immediately effective orders
modifying the operating licenses for all nuclear power plants to require all
licensees, including Generation, to implement certain interim security
enhancements. In issuing the orders, the NRC found that these compensatory
measures should be implemented "as prudent, interim measures, to address the
generalized high-level threat environment . . . ." The orders direct all
licensees to provide the NRC a schedule for achieving compliance with the
requirements of the orders or explain site-
14
specific circumstances to justify relief or variation from those requirements.
In addition, if implementation of any requirement would adversely affect safe
operation of a facility, a licensee may either propose an alternate plan for
achieving the objectives of the order or provide the NRC a schedule for
modifying the facility to address the adverse safety condition(s). All
enhancements required by the orders are to be implemented by August 31, 2002.
The orders are to remain in effect pending an NRC decision that changes in the
threat environment justify a relaxation of the requirements or until the NRC
determines that other changes are necessary following a re-evaluation of current
security programs. The security requirements imposed by the NRC's orders are
currently estimated to increase capital expenditures by approximately $1 million
per station for such things as enhanced vehicle barriers, modification to plant
facilities and increased size of guard force.
NUCLEAR WASTE DISPOSAL. There are no facilities for the reprocessing or
permanent disposal of spent nuclear fuel (SNF) currently in operation in the
United States, nor has the NRC licensed any such facilities. Generation
currently stores all SNF generated by nuclear generation facilities in on-site
storage pools and, in the case of Peach Bottom and Dresden, some SNF has been
placed in dry cask storage facilities. SNF storage pools do not have sufficient
storage capacity for the life of the plant and Generation is developing dry cask
storage facilities, as necessary to support operations.
Under the Nuclear Waste Policy Act of 1982 (NWPA), the United States
Department of Energy (DOE) is responsible for the disposal of SNF and other
high-level radioactive waste. ComEd and PECO each signed contracts with the DOE
(each, Standard Contract) to provide for disposal of SNF from their respective
nuclear generation stations. Generation assumed the ComEd and PECO Standard
Contracts as part of the restructuring, covering Byron, Braidwood, LaSalle, Quad
Cities, Zion, Dresden, Limerick and Peach Bottom. In accordance with the NWPA
and the Standard Contract, ComEd and PECO pay the DOE one mill ($.001) per kWh
of nuclear generation, net of station use, for the cost of nuclear fuel
long-term storage and disposal. This fee may be adjusted, in order to ensure
full cost recovery by the DOE.
The Standard Contract required ComEd and PECO to pay the DOE a one-time
fee applicable to nuclear generation through April 6, 1983. PECO has paid this
fee while ComEd exercised its option to pay the one-time fee of $277 million,
with interest, just prior to the first delivery of SNF to the DOE. As of
December 31, 2001, the unfunded liability for the one-time fee with interest was
$843 million. This obligation was assumed by Generation in the corporate
restructuring.
The NWPA and the Standard Contract required the DOE to begin taking
possession of SNF generated by nuclear generating units by no later than January
1998. The DOE, however, failed to meet that deadline and its performance is
expected to be delayed significantly. The DOE's current estimate for opening an
SNF permanent disposal facility is 2010. This extended delay in SNF acceptance
by the DOE has led to Exelon's adoption of dry storage at its Dresden and Peach
Bottom Units and its consideration of dry storage at other units.
In July 1998, ComEd filed a complaint against the DOE in the U.S. Court
of Federal Claims seeking to recover damages caused by the DOE's failure to
honor its contractual obligation to begin disposing of SNF in January 1998.
ComEd subsequently moved for partial summary judgment on liability for breach of
contract claim. In August 2001, the Court granted ComEd's motion for partial
summary judgment for liability on ComEd's breach of contract claim. In November
2001, the DOE filed two partial summary judgment motions relating to certain
damage issues in the case, as well as two motions to dismiss claims other than
ComEd's breach of contract claim. The Court has deferred briefing on those
motions pending completion
15
of discovery on certain damage issues. This litigation was assumed by
Generation in the corporate restructuring.
In July 2000, PECO entered into an agreement with the DOE relating to
Peach Bottom to address the DOE's failure to begin removal of SNF in January
1998, as required by the Standard Contract. Under that agreement, the DOE agreed
to provide PECO with credits against PECO's future contributions to the nuclear
waste fund over the next ten years to compensate for SNF storage costs incurred
as a result of the DOE's breach of the Standard Contract. The agreement also
provides that, upon PECO's request, the DOE will take title to the SNF and the
interim storage facility at Peach Bottom, provided certain conditions are met.
Generation has assumed this contract in restructuring.
In November 2000, eight utilities with nuclear power plants filed a
Joint Petition for Review against the DOE with the U.S. Court of Appeals for the
Eleventh Circuit seeking to invalidate the portion of the agreement providing
for credits to PECO against nuclear waste fund payments on the ground that such
provision is a violation of the NWPA. PECO intervened as a defendant in that
case, which is ongoing. On December 5, 2001, the United States Court of Appeals
for the Eleventh Circuit heard oral argument on the utilities' Joint Petition
for Review. In April 2001, an individual filed suit against the DOE with the
United States District Court for the Middle District of Pennsylvania seeking to
invalidate the agreement on the grounds that the DOE has violated the National
Environmental Policy Act and the Administrative Procedure Act. PECO intervened
as a defendant and moved to dismiss the complaint. The Court has not yet ruled
on the motion to dismiss.
As a by-product of their operations, nuclear generation units produce
low-level radioactive waste (LLRW). LLRW is accumulated at each generation
station and permanently disposed of at Federally licensed disposal facilities.
The Federal Low-Level Radioactive Waste Policy Act of 1980 (Waste Policy Act)
provides that states may enter into agreements to provide regional disposal
facilities for LLRW and restrict use of those facilities to waste generated
within the region. Illinois and Kentucky have entered into an agreement,
although neither state currently has an operational site, and none is currently
expected to be operational until after 2011. Pennsylvania, which had agreed to
be the host site for LLRW disposal facilities for generators located in
Pennsylvania, Delaware, Maryland and West Virginia, has suspended the search for
a permanent disposal site.
Generation has temporary on-site storage capacity at its nuclear
generation stations for limited amounts of LLRW and has been shipping such waste
to LLRW disposal facilities in South Carolina and Utah. The number of LLRW
disposal facilities is decreasing, and Generation anticipates the possibility of
continuing difficulties in disposing of LLRW. Generation is also pursuing
alternative disposal strategies for LLRW, including a LLRW reduction program to
minimize cost impacts.
The National Energy Policy Act of 1992 requires that the owners of
nuclear reactors pay for the decommissioning and decontamination of the DOE
uranium enrichment facilities. The total cost to all domestic utilities covered
by this requirement is estimated to be $150 million per year through 2006, of
which Generation's share is approximately $22 million per year.
INSURANCE. The Price-Anderson Act limits the liability of nuclear
reactor owners to $9.5 billion for claims arising from a single incident. The
current limit is subject to change to account for the effects of inflation and
changes in the number of licensed reactors. Exelon carries the maximum available
commercial insurance of $200 million and the remaining $9.3 billion is
16
provided through mandatory participation in a financial protection pool. Under
the Price-Anderson Act, all nuclear reactor licensees can be assessed up to $89
million per reactor per incident, payable at a rate of no more than $10 million
per reactor per incident per year. This assessment is subject to inflation and
state premium taxes. In addition, the U.S. Congress could impose revenue raising
measures on the nuclear industry to pay claims. The Price-Anderson Act is
scheduled to expire in August 2002. Although replacement legislation has been
proposed from time to time, Exelon is unable to predict whether replacement
legislation will be enacted. The Price-Anderson Act and the extensive NRC
regulation by the NRC do not preclude claims under state law for personal,
property or punitive damages related to radiation hazards.
Liability of owners of nuclear power plants currently licensed by the
NRC to operate would continue to be limited by the Price-Anderson Act provisions
regardless of whether Congress renews the Price-Anderson Act. The renewal of
Price-Anderson, however, would be important for any new plants to be licensed in
the future. Although several bills proposing the renewal of the Price-Anderson
Act are currently pending in the United States Congress, Generation is unable to
predict at this time whether renewal will occur before August 1, 2002.
Generation maintains property insurance for each nuclear power plant in
which Generation has an ownership interest. Generation is responsible for its
proportionate share of premiums for such insurance based on its ownership
interest. Generation's insurance policies provide coverage for decontamination
liability expense, premature decommissioning and loss or damage to nuclear
facilities. These policies require that insurance proceeds first be applied to
assure that, following an accident, the facility is in a safe and stable
condition and can be maintained in such condition. Under Generation's insurance
policies, proceeds not already expended to place the reactor in a stable
condition must be used to decontaminate the facility. If, as a result of an
incident, the decision is made to decommission the facility, a portion of the
insurance proceeds will be allocated to a decommissioning fund that Generation
is required to maintain by the NRC. (See "Regulation of Nuclear Facility
Decommissioning and Security.") These proceeds would be paid to the fund to make
up any difference between the amount of money in the fund at the time of the
early decommissioning and the amount that would have been in the fund if
contributions had been made over the normal life of the facility. Generation is
unable to predict what effect these requirements may have on the timing of the
availability of insurance proceeds to creditors and the amount of these
proceeds. Under the terms of the various insurance agreements, Generation could
be assessed up to $121 million for losses incurred at any plant insured by the
insurance companies. Nuclear Electric Institute Limited (NEIL), a mutual
insurance company to which Generation belongs, provides property and business
interruption insurance for Generation's nuclear operations. One feature of
Generation's property insurance through NEIL provides coverage for damages
caused by acts of terrorism at any of its nuclear generating stations. This
terrorism endorsement to the NEIL policy specifies that its coverage applies to
acts of terrorism similar to the September 11, 2001 events. In the event that
one or more acts of terrorism cause accidental property damage within a 12-month
period from the first accidental property damage under one or more policies for
all insureds, the maximum recovery for all losses by all insureds will be an
aggregate of $3.2 billion plus such additional amounts as the insurer may
recover for all such losses from reinsurance, indemnity or any other source
applicable to such losses. If total property losses exceed available funds under
the policy, proportionate recovery is provided to cover a portion of an
insured's property losses. The percentage recovery would be equal to the ratio
of the insured's property losses and the total of all property losses.
Generation's insurance through NEIL also provides replacement power
cost insurance in the event of a major accidental outage at a nuclear station.
The policy provides for a waiting
17
period before recovery of costs can commence. The premium for this coverage is
subject to assessment for adverse loss experience, with a maximum assessment of
$46 million per year. Recovery under this insurance for terrorist acts is
subject to the $3.2 billion aggregate limit and secondary to the property
insurance described above.
In addition, Generation participates in the American Nuclear Insurers
Master Worker Program, which provides coverage for worker tort claims filed for
bodily injury caused by a nuclear energy accident. This program was modified,
effective January 1, 1998, to provide coverage to all workers whose
nuclear-related employment began on or after the commencement date of reactor
operations. Generation will not be liable for a retroactive assessment under
this new policy. However, in the event losses incurred under the small number of
policies in the old program exceed accumulated reserves, a maximum retroactive
assessment of up to $50 million could apply.
Generation does not carry any business interruption insurance other
than the NEIL coverage for nuclear operations. Generation is self-insured to the
extent that any losses may exceed the amount of insurance maintained. Such
losses could have a material adverse effect on Generation's financial condition
and results of operations.
DECOMMISSIONING. NRC regulations require that licensees of nuclear
generating 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. Based on estimates of decommissioning costs for each
of the nuclear facilities in which Generation has an ownership interest, the ICC
permits ComEd and the PUC permits PECO to collect from its customers and deposit
in segregated accounts amounts which, together with earnings thereon, will be
used to decommission such nuclear facilities. As of December 31, 2001,
Generation's estimate of its nuclear facilities' decommissioning cost is $7.2
billion in current year dollars. The liability for decommissioning each
generation station is recognized ratably over that generating station's service
life. At December 31, 2001, the decommissioning liability recorded in
accumulated depreciation and deferred credits and other liabilities was $2.7
billion and $1.3 billion, respectively. Decommissioning expenditures are
expected to occur primarily after the plants are retired and are currently
estimated to begin in 2029 for plants currently in operation. Decommissioning
costs are currently recoverable by ComEd and PECO through regulated rates and
are remitted to Generation for deposit in the decommissioning trust funds. In
2001, ComEd and PECO collected from customers and remitted to Generation
approximately $102 million in decommissioning costs. Generation believes that
the amounts being remitted to it by ComEd and PECO and the earnings on nuclear
decommissioning trust funds will be sufficient to fully fund Generation's
decommissioning obligations.
In connection with the transfer of ComEd's nuclear generating stations
to Generation, ComEd asked the ICC to approve the continued recovery of
decommissioning costs after the transfer. On December 20, 2000, the ICC issued
an order finding that the ICC has the legal authority to permit ComEd to
continue to recover decommissioning costs from customers for the six-year term
of the PPAs between ComEd and Generation. Under the ICC order, ComEd is
permitted to recover $73 million per year from customers for decommissioning for
the years 2001 through 2004. In 2005 and 2006, ComEd can recover up to $73
million annually, depending upon the portion of the output of the former ComEd
nuclear stations that ComEd purchases from Generation. Under the ICC order,
subsequent to 2006, there will be no further recoveries of decommissioning costs
from customers. The ICC order also provides that any surplus funds after the
nuclear stations are decommissioned must be refunded to customers. The ICC order
is currently pending on appeal in the Illinois Appellate Court.
18
Zion, a two-unit nuclear generation station, and Dresden Unit 1
formerly owned by ComEd, have permanently ceased power generation. ComEd
transferred Zion and Dresden Unit 1 as well as their related decommissioning
liabilities and trust funds to Generation as part of Exelon's corporate
restructuring. Zion's and Dresden Unit 1's spent nuclear fuel is currently being
stored in on-site storage pools until a permanent repository under the NWPA is
completed. Generation has recorded a liability of $1.3 billion, which represents
the estimated cost of decommissioning Zion and Dresden Unit 1 in current year
dollars. Decommissioning expenditures are expected to occur primarily after 2013
and 2030 for Zion and Dresden Unit 1, respectively.
FOSSIL AND HYDROELECTRIC FACILITIES.
Fossil units include:
o base-load units -- the coal-fired units at Eddystone and Cromby and our
interests in the Keystone and Conemaugh Stations;
o intermediate units -- the Eddystone and Cromby units that have dual fuel
(oil/gas) capability; and
o peaking units -- oil- or gas-fired steam turbines, combustion turbines and
internal combustion units at various locations.
Hydroelectric facilities include:
o base-load units-- at the Conowingo run-of-river hydroelectric facility on
the Susquehanna River in Harford County, Maryland; and
o intermediate units-- at the Muddy Run pumped-storage hydroelectric
facility in Lancaster County, Pennsylvania.
Generation operates all of its fossil and hydroelectric facilities
other than La Porte, Keystone and Conemaugh. In 2001, approximately 3% of
electric output was generated from our owned fossil and hydroelectric generation
facilities. The majority of this output was dispatched to support Generation's
power marketing activities.
Generation is in the process of extensively renovating the Conowingo
and Muddy Run control systems to improve plant efficiency. Generation is
planning to overhaul 4 units at Conowingo, which is expected to increase
capacity by 10 MW per unit.
The controls at all combustion turbine facilities have been
re-configured to provide remote start capability for all units, enabling
immediate response time to capture fluctuations in electric market prices.
LICENSES. Fossil generation plants are generally not licensed and,
therefore, the decision on when to retire plants is fundamentally an economic
one. Hydroelectric plants are licensed by FERC. The Muddy Run and Conowingo
facilities have licenses that expire in September 2014. Generation is
considering applying to FERC for license extensions of 40 years for both plants,
but the duration of any license extension will depend on then-current policies
at FERC. The process of applying for an extension to an existing hydroelectric
license generally takes at least eight years.
19
LONG-TERM CONTRACTS. In addition to owned generation assets, Generation
sells electricity purchased under the long-term contracts described below:
Seller Location Expiration Capacity (MW)
- ----------------------------- --------------------- ------------- --------------
Midwest Generation, LLC Various in Illinois 2004 9,105
Kincaid Generation, LLC Kincaid, Illinois 2012 1,158
Tenaska Georgia Partners, LP Franklin, Georgia 2029 900
Tenaska Frontier, Ltd Shiro, Texas 2020 830
Others Various 2002 to 2022 4,252
--------------
Total 16,245
==============
MIDWEST GENERATION, LLC CONTRACT. Generation is a party to contracts
with Midwest Generation, LLC (Midwest Generation), a subsidiary of Edison
Mission Energy. Under the contracts, Generation initially had the right to
purchase through 2004 the capacity and energy associated with approximately
9,460 MW of fossil-fired generation stations located in Northern Illinois,
formerly owned by ComEd. The generation units include base-load, intermediate
and peaking units. Under the contracts, Generation pays a fixed capacity charge
that varies by season and a fixed energy charge. The capacity charge is reduced
to the extent the plants are unable to generate and deliver energy when
requested. Under the contracts, Generation has annual rights to reduce the
capacity and related energy purchase obligations, and some of these rights were
recently exercised. Effective January 1, 2002, Generation has released all of
the 355 MW of oil-fixed peaking capacity that is covered by the contracts, and
will decide whether to exercise yearly options in 2003 and 2004 depending on the
projected need for capacity and energy to fulfill obligations under the
agreement with ComEd or otherwise, taking into account forward market conditions
and other alternatives. Finally, Generation is in arbitration with Midwest
Generation under the contract relating to the unavailability of certain units in
January 2001.
FEDERAL POWER ACT
The Federal Power Act gives FERC exclusive rate-making jurisdiction
over wholesale sales of electricity and the transmission of electricity in
interstate commerce. Pursuant to the Federal Power Act, all public utilities
subject to FERC's jurisdiction are required to file rate schedules with FERC
with respect to wholesale sales or transmission of electricity. Tariffs
established under FERC regulation give Generation access to transmission lines
that enables it to participate in competitive wholesale markets.
Because Generation sells power in the wholesale markets, Generation is
deemed to be a public utility for purposes of the Federal Power Act and is
required to obtain FERC's acceptance of the rate schedules for wholesale sales
of electricity. Generation has received authorization from FERC to sell energy
at market-based rates. As is customary with market-based rate schedules, FERC
reserved the right to suspend market-based rate authority on a retroactive basis
if it is subsequently determined that Generation or any of its affiliates
exercised or have the ability to exercise market power. FERC is also authorized
to order refunds if it finds that market-based rates are unreasonable.
In April 1996, FERC issued Order 888 (Order 888). The intent of Order
888 was to open the transmission grid subject to FERC's jurisdiction to all
eligible customers, including sellers of power and retail customers, in states
where retail access is approved. Order 888 requires that owners of transmission
facilities provide access to their transmission facilities under filed tariffs
at cost-based rates. In connection with Order 888, FERC issued Order 889 (Order
889). Under Order 889, PECO and ComEd were required to file Standards of
Conduct, which governed the
20
communication of non-public information between
transmission personnel and employees of any affiliated wholesale merchant
function. FERC recently issued a Notice of Proposed Rulemaking for the Standards
of Conduct for Transmission Providers. Among other things, FERC is considering
whether it would be appropriate for it to adopt measures that would limit the
amount of capacity an affiliate can hold in a transmission provider.
Generation's business would be impacted if any of these measures were
instituted.
In December 1999, FERC issued Order 2000, which encourages the
voluntary restructuring of transmission operations through the use of
independent system operators (ISOs) and RTOs. A result of establishing these
entities is to eliminate or reduce transmission charges imposed by successive
transmission systems when wholesale generators cross several transmission
systems to deliver capacity. During 2000, FERC announced its intention to foster
RTO development. Each transmission-owning public utility was required to file a
plan to form an RTO, with December 2001 as the target date for operation. In
July 2001, FERC conditionally granted RTO status to PJM and, in separate orders,
directed that the various proposed RTOs combine into four regional RTOs.
However, inconsistencies in the pace of RTO development and significant state
public utility commission concerns caused FERC to indefinitely extend its
operational target date of December 2001.
The latter half of 2001 and early 2002 have brought further change to
the electric industry. In early November 2001, FERC announced its intent to
complete RTO development using two parallel tracks: (1) address geographic scope
and governance of RTOs; and (2) address transmission pricing and market design.
Contemporaneously, FERC initiated several immediate steps to move the RTO
development process forward. One of these actions was initiation of an effort to
standardize generator interconnection (a related effort concerning cost
allocation is to be addressed in 2002). Also, FERC issued a Notice of Proposed
Ruling on Revised Public Utility Filing Requirements, pursuant to which it is
considering mandatory electronic filing of transactional data and additional
public filing requirements.
Several other actions by FERC are important. First, FERC announced in
late November 2001 a new market power test, the Supply Margin Assessment (SMA)
screen. Under the SMA, if within a particular geographic market an energy
company's generation capacity exceeds the market's surplus capacity above peak
demand then the test is failed. Where this occurs, FERC will impose on the
company and its affiliates a requirement to offer uncommitted capacity under a
cost-based rate structure. The only exemption will be for companies operating
under the authority of an ISO or RTO with a FERC-approved market monitoring and
mitigation plan. Under this approach, it would be unlikely that a vertically
integrated energy company serving franchised retail load would be able to pass
the test and maintain market-based rates, unless and until the company was a
member of an approved ISO or RTO.
Second, FERC continues to exhibit a commitment to increased market
monitoring with an intent to ensure that high price volatility, such as was seen
in California, does not occur again. As part of this commitment, FERC announced
early in 2002 the formation of the Office of Market Oversight and Investigation,
which will report directly to the FERC Chairman. This new office will assess,
among other things, market performance. It is unclear how Generation's business
may be impacted by these initiatives.
Finally, in December 2001, FERC approved the Midwest ISO (MISO) as an
RTO, which principally resides within the MAPP reliability region. The FERC's
action also rejected the stand alone, for-profit RTO structure proposed by the
Alliance Companies. FERC, however, indicated that a for-profit transmission
company could be formed and successfully integrated into the
21
MISO. Currently, while a significant portion of Exelon's generation is located
within the PJM RTO area, other significant generation is located within the MAIN
reliability region, where an approved ISO or RTO does not exist. It is possible
that under its evolving market power tests, FERC might determine that Generation
has market power in this area. If FERC were to suspend Generation's market-based
rate authority, it would most likely be necessary to file, and obtain FERC
acceptance of, cost-based rate schedules or schedules tied to a public index. In
addition, the loss of market-based rate authority would subject Generation to
the accounting, record-keeping and reporting requirements that are imposed on
public utilities with cost-based rate schedules.
FUEL
The following table shows sources of electric supply for 2001 and
estimated for 2002:
Source of Electric Supply
----------------------------
2001 2002 (Est.)
------- -------------
Nuclear units 54% 52%
Purchases 37% 39%
Fossil and hydro units 3% 3%
Units operated by others (a) 6% 6%
------- -------------
100% 100%
------- -------------
(a) Reflects Generation's share of the output of Salem, Keystone and Conemaugh
stations, and 100% of the output for LaPorte station, all which are operated by
other companies. See ITEM 2. Properties - for further information on
Generation's station ownership.
The fuel costs for nuclear generation are substantially less than
fossil-fuel generation. Consequently, nuclear generation is the most
cost-effective way for Generation to meet its commitment to supply the
requirements of ComEd, PECO and Enterprise's competitive retail energy sales
business, Exelon Energy Inc. (Exelon Energy), and for sales to other utilities.
The cycle of production and utilization of nuclear fuel includes the
mining and milling of uranium ore into uranium concentrates, the conversion of
uranium concentrates to uranium hexafluoride, the enrichment of the uranium
hexafluoride and the fabrication of fuel assemblies. Generation has uranium
concentrate inventory and supply contracts sufficient to meet all of its uranium
concentrate requirements through 2003. Generation's contracted conversion
services are sufficient to meet all of its uranium conversion requirements
through 2004. All of Generation's enrichment requirements have been contracted
through 2004. Contracts for fuel fabrication have been obtained through 2005.
Generation does not anticipate difficulty in obtaining the necessary uranium
concentrates or conversion, enrichment or fabrication services for its nuclear
units.
Generation obtains approximately 25% of its uranium enrichment services
from European suppliers. There is an ongoing trade action by USEC, Inc. (USEC)
alleging dumping in the United States against European enrichment services
suppliers. In January 2002, the U.S. International Trade Commission determined
that USEC was "materially injured or threatened with material injury" by
low-enriched uranium exported by European suppliers. The U.S. Department of
Commerce (DOC) has assessed countervailing and anti-dumping duties against the
European suppliers. Both USEC and the European suppliers have appealed these
decisions. Exelon is uncertain at this time as to the outcome of the pending
appeals, however as a result of these actions Exelon may incur higher costs for
uranium enrichment services necessary for the production of nuclear fuel.
22
FUEL MANAGEMENT. Coal is obtained for coal-fired plants primarily
through annual contracts with the remainder supplied through either short-term
contracts or spot-market purchases.
Natural gas is procured through annual, monthly and spot-market
purchases. Some fossil generation stations can use either oil or gas as fuel.
Fuel oil inventories are managed such that in the winter months sufficient
volumes of fuel are available in the event of extreme weather conditions and
during the remaining months inventory levels are managed to take advantage of
favorable market pricing. In 2001, the use of financial instruments to mitigate
price risk associated with multi-commodity price exposures was started.
Generation also hedges forward price risk with both over-the-counter and
exchange-traded instruments.
POWER TEAM
Power Team competes nationally in wholesale power marketing on the
basis of price and service offerings, using Generation's generation assets,
transmission access, reservations and its knowledge of the interconnected bulk
power systems and developing markets to assure customers of energy delivery.
Through Power Team, Generation enters into bilateral arrangements for the
purchase, sale and delivery of capacity, energy and ancillary services. Sales
agreements are with load-serving entities, including electric utilities,
municipalities, electric cooperatives, retail load aggregators and other
wholesale market participants. Through Power Team, Generation also competes in
the wholesale spot markets for electricity.
Generation has agreements with ComEd and PECO to supply their
respective load requirements for customers through 2006 and 2010, respectively.
See Item 8. Financial Statements and Supplementary Data - ComEd, Note 2, and
PECO Note 2. Generation has also contracted with Exelon Energy to meet its
supply commitments pursuant to its competitive retail generation sales
agreements. Under the agreements with ComEd and PECO, Generation will supply all
of ComEd and PECO's needs to supply customers who do not select an alternative
electric generation supplier through the end of the respective transition
periods. Therefore, the supply requirements under the agreements will vary
depending on how much of the load has selected an alternative supplier.
Power Team also manages the price and supply risks for energy and fuel
associated with generation assets and the risks of power marketing activities.
Through Power Team, Generation began to use financial and commodity contracts
for trading purposes in the second quarter of 2001. The trading activities
represent a very limited portion of Generation's overall power marketing
activities. For example, the limit on new purchases of electricity for any
forward month represents less than 5% of the owned and contracted supply of
electricity. The trading portfolio is planned to grow modestly in 2002, subject
to stringent risk management limits and policies including volume, stop-loss and
value-at-risk limits to manage exposure to market risk. Additionally, Generation
has a financial risk management policy and a corporate risk group to monitor the
financial risks of its power marketing activities. Financial trading, together
with the effects of Financial Accounting Standards Board (FASB) Statement of
Financial Accounting Standards (SFAS) No. 133 "Accounting for Derivatives and
Hedging Activities" (SFAS No. 133), may cause volatility in Generation's future
results of operations.
Generation's wholesale operations include the physical delivery and
marketing of power obtained through its generation capacity, and long,
intermediate and short-term contracts. Generation seeks to maintain a net
positive supply of energy and capacity, through ownership of generation assets
and power purchase and lease agreements, to protect it from the potential
23
operational failure of one of its owned or contracted power generating units.
Generation has also contracted for access to additional generation through
bilateral long-term PPAs. These agreements are commitments related to power
generation of specific generation plants and/or are dispatchable in nature
similar to asset ownership. Generation enters into PPAs with the objective of
obtaining low-cost energy supply sources to meet its physical delivery
obligations to customers. Excess power is sold in the wholesale market.
Generation has also purchased transmission service to ensure that it has
reliable transmission capacity to physically move its power supplies to meet
customer delivery needs. The intent and business objective for the use of its
capital assets and contracts is to provide Generation with physical power supply
to enable it to deliver energy to meet customer needs.
Generation has entered into bilateral long-term contractual obligations
for sales of energy to load-serving entities including electric utilities,
municipalities, electric cooperatives, and retail load aggregators. Generation
also enters into contractual obligations to deliver energy to wholesale market
participants who primarily focus on the resale of energy products for delivery.
Generation provides delivery of its energy to these customers through access to
transmission assets or rights for transmission service.
In addition, Generation has entered into long-term PPAs with
independent power producers under which Generation makes fixed capacity payments
in return for exclusive rights to the energy and capacity of the generating
units for a fixed period. The terms of the long-term PPAs enable Generation to
dispatch energy from the plants.
At December 31, 2001, Generation had long-term commitments, relating to
the purchase and sale of energy, capacity and transmission rights from
unaffiliated utilities and others, including the Midwest Generation and AmerGen
contracts, as expressed in the following tables:
Capacity Power Only Power Only Transmission
(in millions) Purchases Purchases Sales Rights Purchases
--------- ---------- ---------- -----------------
2002 $1,005 $ 551 $1,803 $ 139
2003 1,214 345 666 31
2004 1,222 346 219 15
2005 406 264 139 15
2006 406 250 58 5
Thereafter 3,657 2,321 22 --
------ ------ ------ ------
Total $7,910 $4,077 $2,907 $ 205
====== ====== ====== ======
In addition, in connection with the acquisition of the TXU generating
stations, expected to close in the second quarter of 2002, Exelon has agreed to
supply TXU with 100% of the station output during the months of May through
September from 2002 through 2006. During the periods covered by the power
purchase agreement, TXU will make fixed capacity payments and will provide fuel
to Exelon in return for exclusive rights to the energy and capacity of the
generation plants.
24
CAPITAL EXPENDITURES
Generation's estimated capital expenditures for 2002 are as follows:
(in millions)
- ------------------------------------------------------------------------------------------------------------
Production Plant $ 403
Nuclear Fuel 432
Investments 254
---------
Total $ 1,089
=========
Approximately 75% of Generation's estimated capital expenditures for
2002 are for additions to or upgrades of existing facilities (including nuclear
outages), nuclear fuel and increases in capacity at existing plants. The
remainder is for asset acquisitions other than the TXU generating station
acquisition.
SITHE
Generation owns 49.9% of the outstanding common stock of Sithe and has
an option, beginning on December 18, 2002, to purchase the remaining common
stock outstanding (Remaining Interest) in Sithe. The purchase option expires on
December 18, 2005. In addition, the Sithe stockholders who own in the aggregate
the Remaining Interest have the right to require Generation to purchase the
Remaining Interest (Put Rights) during the same period in which Generation can
exercise its purchase option. At the end of this exercise period, if Generation
has not exercised its purchase option and the other Sithe stockholders have not
exercised their Put Rights, Generation will have an additional one-time option
to purchase shares from the other stockholders in Sithe to bring Generation's
ownership in Sithe from the current 49.9% to 50.1% of Sithe's total outstanding
common stock.
Sithe presently owns and operates 27 power generation facilities in
North America, with approximately 3,371 MW of net merchant generating capacity.
It has 4 facilities under construction with an estimated capacity of 2,651 MW
and approximately 2,400 MW of generation capacity in various stages of advanced
development.
On December 31, 2001, Sithe had long-term debt of $2.3 billion,
including $2.1 billion of non-recourse project debt, not including any
non-recourse project debt associated with Sithe's equity investments. In
December 2001, Sithe entered into a new 18-month corporate credit facility for
$500 million expiring in June 2003. As of December 31, 2001 Sithe had drawn
approximately $176 million under this facility and extended approximately $161
million in letters of credit. Through internally generated cashflows and the
corporate credit facility, Sithe has sufficient liquidity to cover all 2002
operating and capital commitments.
AMERGEN
AmerGen Energy Company, LLC was formed in 1997 by PECO and British
Energy plc, (British Energy), to acquire and operate nuclear generation
facilities in North America. Currently, AmerGen owns three single-unit nuclear
generation facilities, which are described in the table below. AmerGen's nuclear
facilities are subject to the provisions and maximum assessment and recovery
limits of the Price -Anderson Act and NEIL similar to Generation's, as discussed
above within ITEM 1. Business - Generation, however the American Nuclear
Insurers Master Worker Program is not applicable to AmerGen as AmerGen purchased
its nuclear reactors after 1998.
25
The capacity factors for the AmerGen plants for 2000 and 2001 were 87%
and 88.5%, respectively. AmerGen operates these nuclear facilities; however,
Generation provides AmerGen with many services, including management services,
in connection with the operation and support of these facilities under a
Services Agreement dated March 1, 1999. In addition, Generation's chief nuclear
officer holds the same position at AmerGen. As part of the restructuring PECO
transferred its 50% interest in AmerGen to Generation in January 2001.
License Net
Expiration Generation
Station Year Acquired Location Date (1) Capacity (MW)
- ---------------------- ------------- -------------------- ----------- -------------
Clinton Nuclear Power
Station 1999 Clinton, IL 2026 933
Unit 1 of Three Mile
Island Nuclear Station 1999 Londonderry Twp., PA 2014 835
Oyster Creek Nuclear
Generation Facility 2000 Forked River, NJ 2009 630
-----
Total 2,398
=====
(1) AmerGen is reviewing the potential for license renewals for the Oyster Creek
Nuclear Generating Facility (Oyster Creek) and Unit 1 of Three Mile Island
(TMI-1).
As part of each acquisition of its nuclear facilities, AmerGen entered
into a power sales agreement with the seller. The agreement with Illinois Power
for Clinton Nuclear Power Station (Clinton) is for 75% of the output for a term
expiring at the end of 2004. The agreement with GPU, Inc. for TMI-1 and Oyster
Creek are for all of the output. Generation purchases the residual energy from
Clinton through December 31, 2002. The agreement for the output of Oyster Creek
expires on March 31, 2003. The original agreement for the output of TMI-1
expired in 2001. Exelon has agreed to purchase from AmerGen all the energy from
TMI after December 31, 2001 through December 31, 2014. AmerGen maintains a
decommissioning trust fund for each of its plants in accordance with NRC
regulations and believes that amounts in these trust funds, together with
investment earnings thereon, and additional contributions for Clinton from
Illinois Power will be sufficient to meet its decommissioning obligations.
Under its LLC Agreement, AmerGen is managed by or at the direction of a
management committee, which consists of six voting representatives, three of
whom are appointed by British Energy and three by Generation. In addition,
Generation appoints the chairman of the management committee. Action by the
management committee generally requires the affirmative vote of a majority of
members.
Generation may transfer its interest in AmerGen, as may British Energy,
subject to a right of first refusal of the other party and to the right of the
other party to require a third party buying the interest to also purchase the
other party's interest.
In February 2002, Generation entered into an agreement to loan AmerGen
up to $75 million at an interest rate of 1-month London Interbank Offering Rate
plus 2.25%. As of March 31, 2002, $46 million has been loaned to AmerGen. The
loan is due November 1, 2002.
Exelon has committed to provide AmerGen with capital contributions
equivalent to 50% of the purchase price of any acquisitions AmerGen makes in
2002.
ENTERPRISES
Enterprises consists primarily of the infrastructure services business
of InfraSource, Inc. (InfraSource), the energy services business of Exelon
Services, Inc., the competitive retail energy sales business of Exelon Energy,
the district cooling business of Exelon Thermal Technologies,
26
Inc.,
communications joint ventures and other investments weighted towards the
communications, energy services and retail services industries.
The results of InfraSource's infrastructure services business and
Exelon Services' energy services business are dependent on demand for outsourced
construction and maintenance services. That demand has been driven in the past
by the restructuring of the electric utility industry and growth of the
communications, cable and internet industries. Slowdown in that restructuring
and the current condition of the communications, cable and internet industries
means that results will be driven by efforts to manage costs and achieve
synergies.
InfraSource, formerly Exelon Infrastructure Services, Inc., provides
infrastructure services, including infrastructure construction, operation
management and maintenance services to owners of electric, gas, cable and
communications systems, including industrial and commercial customers, utilities
and municipalities, throughout the United States. Since it was established in
1997, InfraSource has acquired thirteen infrastructure service companies. In
2001, InfraSource had revenues of approximately $900 million and employed
approximately 8,200 at the end of 2001.
Exelon Services is engaged in the design, installation and servicing of
heating, ventilation and air conditioning facilities for commercial and
industrial customers. Exelon Services also provides energy-related services,
including performance contracting and energy management systems.
Exelon Energy provides retail electric and gas services as an
unregulated retail energy supplier in Illinois, Massachusetts, Michigan, New
Jersey, Ohio, Pennsylvania and other areas in the Midwest and Northeast United
States. Its retail energy sales business is dependent upon continued
deregulation of retail electric and gas markets and its ability to obtain
supplies of electricity and gas at competitive prices in the wholesale market.
The low margin nature of the business makes it important to achieve
concentrations of customers with higher volumes so as to manage costs.
Exelon Thermal Technologies provides district cooling and related
services to offices and other buildings in the central business district of
Chicago and in other cities in North America. District cooling involves the
production of chilled water at one or more central locations and its circulation
to customers' buildings, primarily for air conditioning.
Exelon Communications is the unit of Enterprises through which Exelon
manages its communications investments. Exelon Communications' principal
investment is PECOAdelphia Communications. PECOAdelphia is a competitive local
exchange carrier, providing local and long-distance, point-to-point voice and
data communications, internet access and enhanced data services for businesses
and institutions in eastern Pennsylvania. PECOAdelphia utilizes a large-scale,
fiber-optic cable-based network that currently extends over 700 miles and is
connected to major long-distance carriers and local businesses. PECOAdelphia is
a 50% owned joint venture with Adelphia Business Solutions.
On March 1, 2002, Exelon Communications announced an agreement to sell
its 49% interest in AT&T Wireless PCS of Philadelphia, LLC for $285 million in
cash. Proceeds from the transaction will be used for Exelon's general corporate
purposes.
Exelon Capital Partners was created in 1999 as a vehicle for direct
venture capital investing in the areas of unregulated energy sales, energy
services, utility infrastructure services,
27
e-commerce and communications. At
December 31, 2001, Exelon Capital Partners had made direct investments in eight
companies, with funding commitments totaling approximately $100 million. The
investment mix was weighted toward the communications industry, but also
included companies in energy services and retail services, including e-commerce.
EMPLOYEES
As of December 31, 2001, Exelon and its subsidiaries had approximately
29,200 employees, in the following companies:
ComEd 7,700
PECO 2,700
Generation 7,200
Enterprises 10,600
BSC 1,000
------
Total 29,200
======
Approximately 7,000 employees, including 4,900 employees of ComEd,
2,000 employees of Generation and 70 employees of BSC are covered by a
collective bargaining agreement with Local 15 of the International Brotherhood
of Electrical Workers (IBEW). Exelon and the IBEW Local 15 reached agreement on
a new Collective Bargaining Agreement (CBA) in April 2001. The new agreement had
an expiration date of March 31, 2004. An agreement to extend the date of the
contracts was ratified by the union on December 31, 2001. The new agreements run
through September 30, 2005, for Generation, and September 30, 2006 for ComEd and
BSC. The new agreements extend the existing CBA, create separate agreements for
the major business units and provide for a voluntary severance plan.
In addition, approximately 4,900 Enterprises employees are represented
by unions, including approximately 2,600 employees who are represented by
various local unions of the International Brotherhood of Electrical Workers. The
remaining union employees are members of a number of different local unions,
including laborers, welders, operators, plumbers and machinists.
Over the past several years, a number of unions have filed petitions
with the National Labor Relations Board to hold certification elections with
regard to different segments of employees within PECO. In all cases, PECO
employees have rejected union representation. Exelon expects that such
petitions, related to segments of employees at PECO, Generation and Enterprises,
will continue to be filed in the future.
ENVIRONMENTAL REGULATION
GENERAL
Specific operations of Exelon, primarily those of Generation, are
subject to regulation regarding environmental matters by the United States and
by various states and local jurisdictions where Exelon operates its facilities.
The Illinois Pollution Control Board (IPCB) has jurisdiction over environmental
control in the State of Illinois, together with the Illinois Environmental
Protection Agency, which enforces regulations of the IPCB and issues permits in
connection with environmental control. The Pennsylvania Department of
Environmental Protection (PDEP) has jurisdiction over environmental control in
the Commonwealth of Pennsylvania. State regulation
28
includes the authority to
regulate air, water and noise emissions and solid waste disposals. The United
States Environmental Protection Agency (EPA) administers certain Federal
statutes relating to such matters as do various interstate and local agencies.
WATER
Under the Federal Clean Water Act, National Pollutant Discharge
Elimination System (NPDES) permits for discharges into waterways are required to
be obtained from the EPA or from the state environmental agency to which the
permit program has been delegated. Those permits must be renewed periodically.
Generation either has NPDES permits for all of its generating stations or has
pending applications for such permits. Generation is also subject to the
jurisdiction of certain other state and interstate agencies, including the
Delaware River Basin Commission and the Susquehanna River Basin Commission.
SOLID AND HAZARDOUS WASTE
The Comprehensive Environmental Response, Compensation, and Liability
Act of 1980, as amended (CERCLA), provides for immediate response and removal
actions coordinated by the EPA in the event of threatened releases of hazardous
substances into the environment and authorizes the U.S. Government either to
clean up sites at which hazardous substances have created actual or potential
environmental hazards or to order persons responsible for the situation to do
so. Under CERCLA, generators and transporters of hazardous substances, as well
as past and present owners and operators of hazardous waste sites, are strictly,
jointly and severally liable for the cleanup costs of waste at sites, most of
which are listed by the EPA on the National Priorities List (NPL). These
potentially responsible parties (PRPs) can be ordered to perform a cleanup, can
be sued for costs associated with a EPA-directed cleanup, may voluntarily settle
with the U.S. Government concerning their liability for cleanup costs, or may
voluntarily begin a site investigation and site remediation under state
oversight prior to listing on the NPL. Various states, including Illinois and
Pennsylvania, have enacted statutes that contain provisions substantially
similar to CERCLA. In addition, the Resource Conservation and Recovery Act
(RCRA) governs treatment, storage and disposal of solid and hazardous wastes and
cleanup of sites where such activities were conducted.
ComEd, PECO and Generation and their subsidiaries are or are likely to
become parties to proceedings initiated by the EPA, state agencies and/or other
responsible parties under CERCLA and RCRA with respect to a number of sites,
including manufactured gas plant (MGP) sites, or may undertake to investigate
and remediate sites for which they may be subject to enforcement actions by an
agency or third party.
By notice issued in November 1986, the EPA notified over 800 entities,
including ComEd and PECO, that they may be PRPs under CERCLA with respect to
releases of radioactive and/or toxic substances from the Maxey Flats disposal
site, a LLRW disposal site near Moorehead, Kentucky, where ComEd and PECO wastes
were deposited. A settlement was reached among the Federal and private PRPs,
including ComEd and PECO, the Commonwealth of Kentucky and the EPA concerning
their respective roles and responsibilities in conducting remedial activities at
the site. Under the settlement, the private PRPs agreed to perform the initial
remedial work at the site and the Commonwealth of Kentucky agreed to assume
responsibility for long-range maintenance and final remediation of the site. On
April 18, 1996, a consent decree, which included the terms of the settlement,
was entered by the United States District Court for the Eastern District of
Kentucky. The PRPs have entered into a contract for the design and
29
implementation of the remedial plan and work has commenced. As a result of
restructuring, ComEd's and PECO's liability and obligations arising from the
Maxey Flats site have been transferred to Generation. Exelon estimates that its
share of remediation costs will not be material.
By notice issued in December 1987, the EPA notified several entities,
including PECO, that they may be PRPs under CERCLA with respect to wastes
resulting from the treatment and disposal of transformers and miscellaneous
electrical equipment at a site located in Philadelphia, Pennsylvania (the Metal
Bank of America site). Several of the PRPs, including PECO, formed a steering
committee to investigate the nature and extent of possible involvement in this
matter. On May 29, 1991, a Consent Order was issued by the EPA pursuant to which
the members of the steering committee agreed to perform the remedial
investigation and feasibility study as described in the work plan issued with
the Consent Order. PECO's share of the cost of study was approximately 30%. On
July 19, 1995, the EPA issued a proposed plan for remediation of the site, which
involves removal of contaminated soil, sediment and groundwater and which the
EPA estimated would cost approximately $17 million to implement. On June 26,
1998, the EPA issued an Order to the non-de minimis PRP group members, and
others, including the owner, to implement the remedial design (RD) and remedial
action (RA). The PRP Group is proceeding as required by the Order. It has
selected a contractor which has been approved by the EPA, and, on November 5,
1998, submitted the draft RD work plan. The EPA has approved the PRP Group's RD
work plan and based upon the RD investigation, the EPA has modified the work
plan. On March 5, 2001, the PRP group submitted a revised RD to the EPA, in
which it estimates the cost to implement the RA to range from $14 million to $27
million. The EPA and the PRPs are also involved in litigation with the site
owner concerning remediation liability. PECO is unable to estimate its share of
the costs of the remedial activities.
MGP SITES
MGPs manufactured gas in Illinois and Pennsylvania from approximately
1850 to 1950. ComEd generally did not operate MGPs as a corporate entity but
did, however, acquire MGP sites as part of the absorption of smaller utilities.
Approximately half of these sites were transferred to Nicor Gas as part of a
general conveyance in 1954. ComEd also acquired former MGP sites as vacant real
estate on which ComEd facilities have been constructed. To date, ComEd has
identified 44 former MGP sites for which it may be liable for remediation.
Similarly, PECO has identified 28 sites where former MGP activities may have
resulted in site contamination. With respect to these sites, ComEd and PECO are
presently engaged in performing various levels of activities, including initial
evaluation to determine the existence and nature of the contamination, detailed
evaluation to determine the extent of the contamination and the necessity and
possible methods of remediation, and implementation of remediation. Overseeing
state regulatory agencies have approved the remediation of five MGP sites, while
39 other sites are currently under some degree of active study or remediation.
At December 31, 2001, Exelon had accrued $127 million for investigation and
remediation of these MGP sites that currently can be reasonably estimated.
Exelon believes that it could incur additional liabilities with respect to MGP
sites, which cannot be reasonably estimated at this time. Exelon has sued a
number of insurance carriers seeking indemnity/coverage for remediation costs
associated with these former MGP sites.
30
AIR
Air quality regulations promulgated by the EPA, the PDEP and the City
of Philadelphia in accordance with the Federal Clean Air Act and the Clean Air
Act Amendments of 1990 (Amendments) impose restrictions on emission of
particulates, sulfur dioxide (SO2), nitrogen oxides (NOx) and other pollutants
and require permits for operation of emission sources. Such permits have been
obtained by Exelon's subsidiaries and must be renewed periodically.
The Amendments establish a comprehensive and complex national program
to substantially reduce air pollution. The Amendments include a two-phase
program to reduce acid rain effects by significantly reducing emissions of SO2
and NOx from electric power plants. Flue-gas desulfurization systems (scrubbers)
have been installed at all of Generation's coal-fired units other than the
Keystone Station. Keystone is subject to, and in compliance with, the Phase II
SO2 and NOx limits of the Amendments, which became effective January 1, 2000.
Generation and the other Keystone co-owners are purchasing SO2 emission
allowances to comply with the Phase II limits.
Generation has completed implementation of measures, including the
installation of NOx emissions controls and the imposition of certain operational
constraints, to comply with the Reasonably Available Control Technology
limitations of the Amendments. Generation expects that the cost of compliance
with anticipated air-quality regulations may be substantial due to further
limitations on permitted NOx emissions.
The EPA has issued two regulations to limit NOx emissions from power
plants in the eastern United States to address the "ozone transport" issue. The
first regulation was issued on September 24, 1998. The original NOx regulation
covered power plants in the 22 eastern states and had an effective date of May
1, 2003. As a result of litigation at the D.C. Circuit Court of Appeals, the
original NOx regulation was revised to cover 19 eastern states (rather than the
original 22) and the effective date was delayed by approximately one year to May
31, 2004. In most other respects, the original NOx regulation was substantively
upheld by the Court. Both Illinois and Pennsylvania power plants are covered by
the original NOx regulation. The second EPA regulation, referred to as the
"Section 126 Petition Regulation," was issued on May 25, 1999. This regulation
was issued by the EPA in response to downwind state (Connecticut, Maine,
Massachusetts, New Hampshire, New York, Pennsylvania, Rhode Island, Vermont)
complaints under Section 126 of the Clean Air Act that upwind state NOx
emissions were negatively impacting downwind states' ability to attain the
Federal ozone standard. The Section 126 Petition Regulation requires
substantively the same NOx reduction requirement for the power generation sector
as the original NOx regulation. However, the Section 126 Petition Regulation
covers a more limited number of states (Delaware, Indiana, Kentucky, Maryland,
Michigan, North Carolina, New Jersey, New York, Ohio, Virginia and West
Virginia). It does not cover power plants in Illinois. The compliance date of
the Section 126 Petition Regulation, originally set for May 1, 2003, was tolled
by the D.C. Circuit Court of Appeals pending resolution of several issues.
Despite this delay, the northeast states covered by the Section 126 Petition
Regulation are still expected to comply with the original May 1, 2003 compliance
date. On September 23, 2000, Pennsylvania issued final state NOx reduction
regulations for power plants that satisfy both the original NOx regulation and
the Section 126 Petition Regulation. The Pennsylvania regulation is effective
May 1, 2003. Exelon is currently evaluating options to comply with the new
Pennsylvania regulations. These options include limiting the operation of the
Generation's fossil-fired units, require the purchase of NOx emission allowances
from the allowance market, the installation of additional control equipment, or
a combination of these alternatives.
31
Many other provisions of the Amendments affect activities of Exelon's
business, primarily Generation. The Amendments establish stringent control
measures for geographical regions which have been determined by the EPA to not
meet National Ambient Air Quality Standards; establish limits on the purchase
and operation of motor vehicles and require increased use of alternative fuels;
establish stringent controls on emissions of toxic air pollutants and provide
for possible future designation of some utility emissions as toxic; establish
new permit and monitoring requirements for sources of air emissions; and provide
for significantly increased enforcement power, and civil and criminal penalties.
Several other legislative and regulatory proposals regarding the
control of emissions of air pollutants from a variety of sources, including
utility units, are under active consideration. Exelon is unable at this time to
ascertain which proposals may take effect, what requirements they may contain,
or how they may affect Exelon's business. At this time, Exelon can provide no
assurance that these proposals if adopted will not have a significant effect on
Exelon's operations and costs.
COSTS
At December 31, 2001, Exelon accrued $156 million for various
environmental investigation and remediation costs that can be reasonably
estimated, including approximately $127 million for investigation and
remediation of former MGP sites as described above. Exelon cannot currently
predict whether it will incur other significant liabilities for additional
investigation and remediation costs at sites presently identified or additional
sites which may be identified by Exelon, environmental agencies or others or
whether all such costs will be recoverable through rates or from third parties.
Exelon's budget for capital requirements for 2002 for compliance with
environmental requirements total approximately $35 million. In addition, Exelon
may be required to make significant additional expenditures not presently
determinable.
OTHER SUBSIDIARIES OF COMED AND PECO WITH PUBLICLY HELD SECURITIES
ComEd Transitional Funding Trust (ComEd Funding Trust), a Delaware
business trust, was formed on October 28, 1998, pursuant to a trust agreement
among First Union Trust Company, National Association, as Delaware trustee, and
two individual trustees appointed by ComEd. ComEd Funding Trust was created for
the sole purpose of issuing transitional funding notes to securitize intangible
transition property granted to ComEd Funding LLC, a ComEd affiliate, by an ICC
order issued July 21, 1998. On December 16, 1998, ComEd Funding Trust issued
$3.4 billion of transitional funding notes, the proceeds of which were used to
purchase the intangible transition property held by ComEd Funding LLC. ComEd
Funding LLC transferred the proceeds to ComEd where they were used, among other
things, to repurchase outstanding debt and equity securities of ComEd. The
transitional funding notes are solely obligations of ComEd Funding Trust and are
secured by the intangible transition property, which represents the right to
receive instrument funding charges collected from ComEd's customers. The
instrument funding charges represent a nonbypassable, usage-based, per kWh
charge on designated consumers of electricity.
ComEd Financing I, a Delaware business trust, was formed by ComEd on
July 21, 1995. ComEd Financing I was created solely for the purpose of issuing
$200 million of trust preferred securities. The trust preferred
32
securities issued on September 26, 1995, carry an annual distribution rate of
8.48% and are mandatorily redeemable on September 30, 2035. The sole assets of
ComEd Financing I are $206.2 million principal amount of 8.48% subordinated
deferrable interest notes due September 30, 2035, issued by ComEd.
Similarly, ComEd Financing II, a Delaware business trust, was formed by
ComEd on November 20, 1996. ComEd Financing II was created solely for the
purpose of issuing $150 million of trust capital securities. The trust capital
securities were issued on January 24, 1997, carry an annual distribution rate of
8.50% and are mandatorily redeemable on January 15, 2027. The sole assets of
ComEd Financing II are $154.6 million principal amount of 8.50% subordinated
deferrable interest debentures due January 15, 2027, issued by ComEd.
PECO Energy Transition Trust (PETT), a Delaware business trust wholly
owned by PECO, was formed on June 23, 1998 pursuant to a trust agreement between
PECO, as grantor, First Union Trust Company, National Association, as issuer
trustee, and two beneficiary trustees appointed by PECO. PETT was created for
the sole purpose of issuing transition bonds to securitize a portion of PECO's
authorized stranded cost recovery. On March 25, 1999, PETT issued $4 billion of
its Series 1999-A Transition Bonds. On May 2, 2000, PETT issued $1 billion of
its Series 2000-A Transition Bonds and on March 1, 2001, PETT issued $805
million of its Series 2001-A Transition Bonds to refinance a portion of the
Series 1999-A Transition Bonds. The Transition Bonds are solely obligations of
PETT secured by intangible transition property, representing the right to
collect transition charges sufficient to pay the principal and interest on the
Transition Bonds, sold by PECO to PETT.
PECO Energy Capital Corp., a wholly owned subsidiary of PECO, is the
sole general partner of PECO Energy Capital, L.P., a Delaware limited
partnership (Partnership). The Partnership was created solely for the purpose of
issuing preferred securities, representing limited partnership interests and
lending the proceeds thereof to PECO and entering into similar financing
arrangements. The loans to PECO are evidenced by PECO's subordinated debentures
(Subordinated Debentures), which are the only assets of the Partnership. The
only revenues of the Partnership are interest on the Subordinated Debentures.
All of the operating expenses of the Partnership are paid by PECO Energy Capital
Corp. As of December 31, 2001, the Partnership held $128 million aggregate
principal amount of the Subordinated Debentures.
PECO Energy Capital Trust II (Trust II) was created in June 1997 as a
Delaware business trust solely for the purpose of issuing trust receipts (Trust
II Receipts) each representing an 8.00% Cumulative Monthly Income Preferred
Security, Series C (Series C Preferred Securities) of the Partnership. The
Partnership is the sponsor of Trust II. As of December 31, 2001, Trust II had
outstanding 2,000,000 Trust II Receipts. At December 31, 2001, the assets of
Trust II consisted solely of 2,000,000 Series C Preferred Securities with an
aggregate stated liquidation preference of $50 million. Distributions were made
on the Trust II Receipts during 2001 in the aggregate amount of $4 million.
Expenses of Trust II for 2001 were approximately $10,000, all of which were paid
by PECO Energy Capital Corp. The Trust II Receipts are issued in book-entry only
form.
PECO Energy Capital Trust III (Trust III) was created in April 1998 as
a Delaware business trust solely for the purpose of issuing trust receipts
(Trust III Receipts) each representing an 7.38% Cumulative Preferred Security,
Series D (Series D Preferred Securities) of the Partnership. The Partnership is
the sponsor of Trust III. As of December 31, 2001, Trust III had outstanding
78,105 Trust III Receipts. At December 31, 2001, the assets of Trust III
consisted solely of 78,105 Series D Preferred Securities with an aggregate
stated liquidation preference of
33
$78 million. Distributions were made on Trust III Receipts during 2001 in the
aggregate amount of $5.8 million. Expenses of Trust III for 2001 were
approximately $10,000, all of which were paid by PECO Energy Capital Corp. The
Trust III Receipts are issued in book-entry only form.
EXECUTIVE OFFICERS OF THE REGISTRANTS AT DECEMBER 31, 2001
EXELON
Name Age Position
- -------------------------------------- --- ----------------------------------------------------------
McNeill, Jr., Corbin A. 62 Co-Chief Executive Officer and Chairman
(retiring as of April 23, 2002)
Rowe, John W. 56 Co-Chief Executive Officer and President
Kingsley Jr., Oliver D. 59 Executive Vice President
Strobel, Pamela B. 49 Executive Vice President
Clark, Frank M. 56 Senior Vice President
Gillis, Ruth Ann M. 47 Senior Vice President and Chief Financial Officer
Gilmore Jr., George H. 52 Senior Vice President
Lawrence, Kenneth G. 54 President and Chief Operating Officer, Energy Delivery
McLean, Ian P. 52 Senior Vice President
Mehrberg, Randall E. 46 Senior Vice President and General Counsel
Moler, Elizabeth A. 52 Senior Vice President, Government Affairs and Policy
Padron, Honorio J. 49 Senior Vice President
Snodgrass, S. Gary 50 Senior Vice President and Chief Human Resources Officer
Gibson, Jean 45 Vice President and Corporate Controller
34
ComEd
Name Age Position
- -------------------------------------- --- ----------------------------------------------------------------------------------
McNeill, Jr., Corbin A. 62 Co-Chief Executive Officer and Chairman, Exelon and Director, ComEd (retiring as
of April 23, 2002)
Rowe, John W. 56 Co-Chief Executive Officer and President, Exelon and Director, ComEd
Strobel, Pamela B. 49 Executive Vice President, Exelon and Chair, ComEd
Gillis, Ruth Ann M. 47 Senior Vice President, Finance and Chief Financial Officer, Exelon and Director,
ComEd
Lawrence, Kenneth G. 54 President and Chief Operating Officer, Energy Delivery and Director, ComEd
Clark, Frank M. 56 President, ComEd
Helwig, David R. 51 Executive Vice President, Operations, ComEd
Berdelle, Robert E. 45 Vice President, Finance and Chief Financial Officer, ComEd
PECO
Name Age Position
- -------------------------------------- --- ----------------------------------------------------------------------------------
McNeill, Jr., Corbin A. 62 Co-Chief Executive Officer and Chairman, Exelon and Director, PECO (retiring as
of April 23, 2002)
Rowe, John W. 56 Co-Chief Executive Officer and President, Exelon and Director, PECO
Strobel, Pamela B. 49 Executive Vice President, Exelon and Chair, PECO
Gillis, Ruth Ann M. 47 Senior Vice President and Chief Financial Officer, Exelon and Director, PECO
Lawrence, Kenneth G. 54 President, PECO
Frankowski, Frank F. 51 Vice President, Finance and Chief Financial Officer, PECO
Each of the above was elected as an executive officer effective October
20, 2000, the closing date of the merger, except for Randall E. Mehrberg, who
was elected effective December 1, 2000, Robert E. Berdelle, who was elected
effective October 11, 2001, Frank F. Frankowski, who was elected effective
October 22, 2001 and George H. Gilmore, Jr., who was elected effective December
3, 2001.
Each of the above executive officers holds such office at the
discretion of the respective company's board of directors until his or her
replacement or earlier resignation, retirement or death.
Prior to his election to his current position, Mr. McNeill was Co-Chief
Executive Officer of ComEd and President, Co-Chief Executive Officer and
Chairman of PECO; Chief Executive Officer of PECO; Chief Operating Officer and
Executive Vice President, Nuclear division of PECO.
Prior to his election to his current position, Mr. Rowe was President,
Co-Chief Executive Officer of ComEd and President, Co-Chief Executive Officer of
PECO; Chairman, President and Chief Executive Officer of ComEd and Unicom; and
President and Chief Executive Officer of New England Electric System.
Prior to his election to his current position, Mr. Kingsley was
Executive Vice President of ComEd and Unicom, President and Chief Nuclear
Officer, Nuclear Generation Group of ComEd, and Chief Nuclear Officer of the
Tennessee Valley Authority.
Prior to her election to her current position, Ms. Strobel was Vice
Chairman of ComEd; Vice Chairman of PECO; Executive Vice President and General
Counsel of ComEd and Unicom; Senior Vice President and General Counsel of ComEd
and Unicom; and Vice President and General Counsel of ComEd.
Prior to his election to his current position, Mr. Clark was Senior
Vice President, Distribution Customer and Marketing Services and External
Affairs of ComEd; Senior Vice President of ComEd and Unicom; Vice President of
ComEd; Governmental Affairs Vice President; and Governmental Affairs Manager.
Prior to her election to her current position, Ms. Gillis was Senior
Vice President and Chief Financial Officer of ComEd and Unicom; Vice President
and Treasurer of ComEd and Unicom; Vice President, Chief Financial Officer and
Treasurer of the University of Chicago Hospitals and Health System; and Senior
Vice President and Chief Financial Officer of American National Bank and Trust
Company.
Prior to his election to his current position, Mr. Gilmore was Group
President for National Service Industries, Inc.; President and Chief Operating
Officer of Calmat Company; and President of Moore Document Solutions and Moore
Business Systems.
Prior to his election to his current position, Mr. Lawrence was Senior
Vice President, Distribution of PECO; Senior Vice President of PECO, President,
Distribution division, of PECO; Senior Vice President, Distribution division of
PECO; Senior Vice President, Finance and Chief Financial Officer of PECO; and
Vice President, Gas Operations division of PECO.
Prior to his election to his current position, Mr. McLean was President
of the Power Team division of PECO; and Group Vice President of Engelhard
Corporation.
35
Prior to his election to his current position, Mr. Mehrberg was an equity
partner with the law firm of Jenner & Block; and General Counsel and Lakefront
Director of the Chicago Park District.
Prior to her election to her current position, Ms. Moler was Senior Vice
President of ComEd and Unicom; Director of Unicom and ComEd; Partner at the law
firm of Vinson & Elkins, LLP; Deputy Secretary of the U.S. Department of
Energy; and Chair of the Federal Energy Regulatory Commission.
Prior to his election to his current position, Mr. Padron was Executive
Vice President Process Engineering and Chief Information Officer of CompUSA,
Inc.; Senior Vice President and Chief Information Officer of Pepsico Restaurant
Service Group; and Senior Vice President Business Engineering and Technology
and Chief Information Officer of Flagstar Corporation.
Prior to his election to his current position, Mr. Snodgrass was Senior
Vice President of ComEd and Unicom; Vice President of ComEd and Unicom; and
Vice President of USG Corporation.
Prior to her election to her current position, Ms. Gibson was Vice
President and Controller of PECO; and Director of Audit Services and Director
of the Tax Division of PECO.
Prior to his election to his current position, Mr. Helwig was Senior Vice
President, Operations of ComEd; Senior Vice President of ComEd; Vice President
of ComEd; General Manager of General Electric Company's Nuclear Services
Company; and Vice President at PECO.
Prior to his election to his current position, Mr. Berdelle was Vice
President and Comptroller of Unicom and ComEd; and Manager of Financial
Reporting of Unicom and ComEd.
Prior to his election to his current position of Vice President, Finance
and Chief Financial Officer of PECO Energy Company, Mr. Frankowski was
Controller of PECO Energy Company; Manager, Accounting and Control of PECO
Energy; and Director - Taxes of PECO Energy Company.
36
ITEM 2. PROPERTIES.
ENERGY DELIVERY
The electric substations and a portion of the transmission rights of
way of ComEd and PECO are owned in fee. A significant portion of the electric
transmission and distribution facilities is located over or under highways,
streets, other public places or property owned by others, for which permits,
grants, easements or licenses, deemed satisfactory by ComEd and PECO,
respectively, but without examination of underlying land titles, have been
obtained.
TRANSMISSION AND DISTRIBUTION
Exelon's higher voltage electric transmission and distribution lines
owned and in service are as follows:
Voltage (Volts) Circuit Miles
---------------- --------------
ComEd
765,000 90
345,000 2,590
138,000 2,110
PECO
500,000 891
220,000 1,634
132,000 15
ComEd's electric distribution system includes 40,633 pole-line miles of
overhead lines and 38,798 cable miles of underground lines. PECO's electric
distribution system includes 21,009 pole-line miles of overhead lines and 21,002
cable miles of underground lines.
GAS
The following table sets forth PECO's gas pipeline miles at December
31, 2001:
Pipeline Miles
---------------
Transmission 31
Distribution 6,199
Service piping 5,171
------
Total 11,401
======
PECO has a liquefied natural gas facility located in West Conshohocken,
Pennsylvania that has a storage capacity of 1,200,000 million cubic feet (mcf)
and a sendout capacity of 157,000 mcf/day and a propane-air plant located in
Chester, Pennsylvania, with a tank storage capacity of 1,980,000 gallons and a
peaking capability of 25,000 mcf/day. In addition, PECO owns 28 natural gas city
gate stations at various locations throughout its gas service territory.
37
MORTGAGES
The principal plants and properties of ComEd are subject to the lien of
ComEd's Mortgage dated July 1, 1923, as amended and supplemented, under which
ComEd's first mortgage bonds are issued.
The principal plants and properties of PECO are subject to the lien of
PECO's Mortgage dated May 1, 1923, as amended and supplemented, under which
PECO's first mortgage bonds are issued.
38
GENERATION
The following table sets forth Generation's owned net electric generating
capacity by station at December 31, 2001:
No. of % Primary Dispatch Net Generation
Station Location Units Owned (1) Fuel Type Type Capacity(MW) (2)
- --------- -------- ------ ------- --------- -------- --------------
Nuclear (3)
Braidwood Braidwood, IL 2 Uranium Base-load 2,372
Byron Byron, IL 2 Uranium Base-load 2,391
Dresden Morris, IL 2 Uranium Base-load 1,659
LaSalle County Seneca, IL 2 Uranium Base-load 2,298
Limerick Limerick Twp., PA 2 Uranium Base-load 2,312
Peach Bottom Peach Bottom Twp., PA 2 50.00 Uranium Base-load 1,112 (4)
Quad Cities Cordova, IL 2 75.00 Uranium Base-load 1,172 (4)
Salem Hancock's Bridge, NJ 2 42.59 Uranium Base-load 934 (4)
-------
14,250
Fossil (Steam Turbines)
Cromby (1) Phoenixville, PA 1 Coal Base-load 144
Cromby (2) Phoenixville, PA 1 Oil/Gas Intermediate 201
Delaware Philadelphia, PA 2 Oil Peaking 250
Eddystone (1), (2) Eddystone, PA 2 Coal Base-load 581
Eddystone (3), (4) Eddystone, PA 2 Oil/Gas Intermediate 760
Schuylkill Philadelphia, PA 1 Oil Peaking 166
Conemaugh New Florence, PA 2 20.72 Coal Base-load 352 (4)
Keystone Shelocta, PA 2 20.99 Coal Base-load 357 (4)
Fairless Hills Falls Twp., PA 2 Landfill Gas Peaking 60
-------
2,871
Fossil (Combustion Turbines)
Chester Chester, PA 3 Oil Peaking 39
Croydon Bristol Twp., PA 8 Oil Peaking 380
Delaware Philadelphia, PA 4 Oil Peaking 56
Eddystone Eddystone, PA 4 Oil Peaking 60
Falls Falls Twp., PA 3 Oil Peaking 51
Moser Lower Pottsgrove Twp., PA 3 Oil Peaking 51
Pennsbury Falls Twp., PA 2 Landfill Gas Peaking 6
Richmond Philadelphia, PA 2 Oil Peaking 96
Schuylkill Philadelphia, PA 2 Oil Peaking 30
Southwark Philadelphia, PA 4 Oil Peaking 52
Salem Hancock's Bridge, NJ 1 42.59 Oil Peaking 16 (4)
LaPorte LaPorte, Tx 4 Gas Peaking 160
-------
997
Fossil (Internal Combustion/Diesel)
Cromby Phoenixville, PA 1 Oil Peaking 3
Delaware Philadelphia, PA 1 Oil Peaking 3
Schuylkill Philadelphia, PA 1 Oil Peaking 3
Conemaugh New Florence, PA 4 20.72 Oil Peaking 2 (4)
Keystone Shelocta, PA 4 20.99 Oil Peaking 2 (4)
-------
13
Hydroelectric
Conowingo Harford Co., MD 11 Hydro Base-load 512
Muddy Run Lancaster Co., PA 8 Hydro Intermediate 1,072
--- -------
1,584
-------
101 19,715
=== =======
(1) 100%, unless otherwise indicated.
(2) For nuclear stations, except Salem, capacity reflects the annual mean
rating. All other stations, including Salem, reflect a summer rating.
(3) All nuclear stations are boiling water reactors except Braidwood, Byron
and Salem, which are pressurized water reactors.
(4) Generation's portion.
39
The net generating capability available for operation at any time may
be less due to regulatory restrictions, fuel restrictions, efficiency of cooling
facilities and generating units being temporarily out of service for inspection,
maintenance, refueling, repairs or modifications required by regulatory
authorities.
Exelon and its subsidiaries maintain property insurance against loss or
damage to its principal plants and properties by fire or other perils, subject
to certain exceptions. For information regarding nuclear insurance, see ITEM 1.
Business - Generation. Exelon and its subsidiaries are self-insured to the
extent that any losses may exceed the amount of insurance maintained. Any such
losses could have a material adverse effect on Exelon's consolidated financial
condition and results of operations.
ITEM 3. LEGAL PROCEEDINGS.
EXELON
During 1989 and 1991, actions were brought in Federal and state courts
in Colorado against ComEd and its subsidiary, Cotter Corporation (Cotter),
seeking unspecified damages and injunctive relief based on allegations that
Cotter permitted radioactive and other hazardous material to be released from
its mill into areas owned or occupied by the plaintiffs, resulting in property
damage and potential adverse health effects. In 1994, a Federal jury returned
nominal dollar verdicts against Cotter on eight plaintiffs' claims in the 1989
cases, which verdicts were upheld on appeal. The remaining claims in the 1989
actions were settled or dismissed. In 1998, a jury verdict was rendered against
Cotter in favor of 14 of the plaintiffs in the 1991 cases, totaling
approximately $6 million in compensatory and punitive damages, interest and
medical monitoring. On appeal, the Tenth Circuit Court of Appeals reversed the
jury verdict, and remanded the case for new trial. These plaintiffs' cases were
consolidated with the remaining 26 plaintiffs' cases, which had not been tried.
The consolidated trial was completed on June 28, 2001. The jury returned a
verdict against Cotter and awarded $16 million in various damages. On November
20, 2001, the District Court entered an amended final judgment which included an
award of both pre-judgment and post-judgment interests, costs, and medical
monitoring expenses which total $43 million. This matter is being appealed by
Cotter in the Tenth Circuit Court of Appeals. Cotter will vigorously contest the
award.
In November 2000, another trial involving a separate sub-group of 13
plaintiffs, seeking $19 million in damages plus interest was completed in
federal district court in Denver. The jury awarded nominal damages of $42,500 to
11 of 13 plaintiffs, but awarded no damages for any personal injury or health
claims, other than requiring Cotter to perform periodic medical monitoring at
minimal cost. The plaintiffs appealed the verdict to the Tenth Circuit Court of
Appeals.
On February 18, 2000, ComEd sold Cotter to an unaffiliated third party.
As part of the sale, ComEd agreed to indemnify Cotter for any liability incurred
by Cotter as a result of these actions, as well as any liability arising in
connection with the West Lake Landfill discussed in the next paragraph. In
connection with the corporate restructuring, the responsibility to indemnify
Cotter for any liability related to these matters was transferred to Generation.
Generation's management believes adequate reserves have been established in
connection with these proceedings.
40
The United States Environmental Protection Agency (EPA) has advised
Cotter that it is potentially liable in connection with radiological
contamination at a site known as the West Lake Landfill in Missouri. Cotter is
alleged to have disposed of approximately 39,000 tons of soils mixed with 8,700
tons of leached barium sulfate at the site. Cotter, along with three other
companies identified by the EPA as potentially responsible parties (PRPs), is
reviewing a draft feasibility study that recommends capping the site. The PRPs
are also engaged in discussions with the State of Missouri and the EPA. The
estimated costs of remediation for the site are $10 to $15 million. Once a final
feasibility study is complete and a remedy selected, it is expected that the
PRPs will agree on an allocation of responsibility for the costs. Until an
agreement is reached, Generation cannot predict its share of the costs.
PECO initiated tax appeals regarding two of its nuclear facilities,
Limerick Generating Station (Montgomery County) and Peach Bottom Atomic Power
Station (York County), and one of its fossil facilities, Eddystone (Delaware
County). The potential benefit or obligation resulting from these appeals was
transferred to Generation in connection with the corporate restructuring.
Generation is also involved in a tax appeal for TMI (Dauphin County) through
AmerGen. Generation does not believe the outcome of these matters will have a
material adverse effect on its results of operations or financial condition.
On May 27, 1998, the United States Department of Justice, on behalf of
the Rural Utilities Service and the Chapter 11 Trustee for the Cajun Electric
Power Cooperative, Inc. ("Cajun"), filed an action claiming breach of contract
against PECO in the United States District Court for the Middle District of
Louisiana arising out of PECO's termination of the contract to purchase Cajun's
interest in the River Bend nuclear power plant. Effective with the corporate
restructuring, Generation has agreed to assume any liability and obligation
arising from this litigation. During 2001, the parties reached a settlement of
the dispute, and Generation made a payment of $14 million to Cajun.
Generation is an unsecured creditor in Enron Corp.'s (Enron) bankruptcy
proceeding. Generation's claim for power and other products sold to Enron in
November and early December 2001 is $8.5 million. Enron may assert that
Generation should not have closed out and terminated all of its forward
contracts with Enron. If Enron is successful in this argument, Generation's
exposure could be greater than $8.5 million. Generation may also be subject to
exposure due to the credit policies of ISO-operated spot markets that allocate
defaults of market participants to non-defaulting participants. Generation has
established reserves for these matters.
(See the ComEd litigation section for additional Enron litigation matters.)
COMED
In March 1999, ComEd reached a settlement agreement with the City of
Chicago (Chicago) to end the arbitration proceeding between ComEd and Chicago
regarding the January 1, 1992 franchise agreement. As part of the settlement
agreement, ComEd and Chicago agreed to a revised combination of ongoing work
under the franchise agreement and new initiatives that total approximately $1
billion in defined transmission and distribution expenditures by ComEd to
improve electric services in Chicago, of which approximately $940 million has
been expended through December 31, 2001. The settlement agreement provides that
ComEd would be subject to liquidated damages if the projects are not completed
by various dates, unless it was prevented from doing so by events beyond its
reasonable control. In addition, ComEd and Chicago established an Energy
Reliability and Capacity Account, into which ComEd deposited $25 million during
each of the years 1999 through 2001 and has conditionally agreed to deposit $25
million at the end of 2002, to help ensure an adequate and reliable electric
supply for Chicago.
41
Three of ComEd's wholesale municipal customers filed a complaint and
request for refund with the FERC alleging that ComEd failed to properly adjust
its rates, as provided for under the terms of the electric service contracts
with the municipal customers and to track certain refunds made to ComEd's retail
customers in the years 1992 through 1994. In the third quarter of 1998, FERC
granted the complaint and directed that refunds be made, with interest. ComEd
filed a request for rehearing. On April 30, 2001, FERC issued an order granting
rehearing in which it determined that its 1998 order had been erroneous and that
no refunds were due from ComEd to the municipal customers. On June 29, 2001,
FERC denied the customers' requests for rehearing of the order granting
rehearing. In August 2001, each of the three wholesale municipal customers
appealed the April 30, 2001 FERC order to the Federal circuit court, which
consolidated the appeals for the purposes of briefing and decision. In November
2001, the court suspended briefing pending court-initiated settlement
discussions.
On April 18, 2001, the Godley Park District filed suit in Will County
Circuit Court against ComEd and Exelon alleging that oil spills at Braidwood
Station have contaminated the Park District's water supply. The complaint sought
actual damages, punitive damages of $100 million and statutory penalties. The
court dismissed all counts seeking punitive damages and statutory penalties, and
the plaintiff has filed an amended complaint before the court. ComEd is
contesting the liability and damages sought by the plaintiff.
In 1996, several developers of non-utility generating facilities filed
litigation against various Illinois officials claiming that the enforcement
against those facilities of an amendment to Illinois law removing the
entitlement of those facilities to state-subsidized payments for electricity
sold to ComEd after March 15, 1996 violated their rights under the Federal and
state constitutions. The developers also filed suit against ComEd for a
declaratory judgement that their rights under their contracts with ComEd were
not affected by the amendment. On August 4, 1999, the Illinois Appellate Court
held that the developers' claims against the state were premature, and the
Illinois Supreme Court denied leave to appeal that ruling. Developers of both
facilities have since filed amended complaints repeating their allegations that
ComEd breached the contracts in question and requesting damages for such breach,
in the amount of the difference between the state-subsidized rate and the amount
ComEd was willing to pay for the electricity. ComEd is contesting this matter.
In August 1999, three class action lawsuits were filed against ComEd,
and subsequently consolidated, in the Circuit Court of Cook County, Illinois
seeking damages for personal injuries, property damage and economic losses
related to a series of service interruptions that occurred in the summer of
1999. The combined effect of these interruptions resulted in over 168,000
customers losing service for more than four hours. Conditional class
certification was approved by the court for the sole purpose of exploring
settlement talks. ComEd filed a motion to dismiss the complaints. On April 24,
2001, the court dismissed four of the five counts of the consolidated complaint
without prejudice and the sole remaining count was dismissed in part. On June 1,
2001, the plaintiffs filed a second amended consolidated complaint and ComEd has
filed an answer. A portion of any settlement or verdict may be covered by
insurance; discussions with the carrier are ongoing. ComEd's management believes
adequate reserves have been established in connection with these cases.
As a result of Enron's bankruptcy proceeding, ComEd has potential
monetary exposure for customers served by Enron Energy Services (EES) as a
billing agent. On January 7, 2002, EES was authorized by the bankruptcy court
to, and subsequently did, reject its contract with 129 of ComEd's customer
accounts. As of March 15, 2002, EES was the billing agent for 97 of
42
ComEd's customer accounts. EES has advised Exelon that it will retain its
billing agency with these remaining accounts. ComEd is working to ensure that
customers know what amounts are owed to ComEd on 269 accounts on which EES has
been removed as billing agent, and has obtained updated billing addresses for
these accounts. With regard to the 97 remaining accounts, as of March 15, 2002,
ComEd's total amount outstanding is immaterial. Because that amount is owed to
ComEd by individual customers, it is not part of the bankrupt Enron's estate.
The ICC has rescinded EES's authority to act as an alternative retail energy
supplier in Illinois. However, EES never served as a supplier, as opposed to a
billing agent, to any of ComEd's retail accounts.
PECO
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
43
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
EXELON
The information required by this Item with respect to market
information relating to Exelon's common stock is incorporated herein by
reference to "Market for Registrant's Common Equity and Related Stockholder
Matters" in Exhibit 99-1 to Exelon's Current Report on Form 8-K dated February
28, 2002.
ComEd
As of March 1, 2002, there were outstanding 127,016,373 shares of
common stock, $12.50 par value, of ComEd, of which 127,002,904 shares were held
by Exelon. At March 1, 2002, in addition to Exelon, there were approximately 280
holders of ComEd common stock. There is no established market for shares of the
common stock of ComEd.
ComEd may not declare dividends on any shares of its capital stock in
the event that: (1) it exercises its right to extend the interest payment
periods on the subordinated debt securities which were issued to ComEd Financing
I and ComEd Financing II (the Financing Trusts); (2) it defaults on its
guarantee of the payment of distributions on the preferred trust securities of
the Financing Trusts; or (3) an event of default occurs under the Indenture
under which the subordinated debt securities are issued. See Item 1. Business -
Other Subsidiaries of ComEd and PECO with Publicly Held Securities.
PECO
As of March 1, 2002, there were outstanding 170,478,507 shares of
common stock, without par value, of PECO, all of which were held by Exelon.
PECO's Articles of Incorporation prohibit payment of any dividend on,
or other distribution to the holders of, common stock if, after giving effect
thereto, the capital of PECO represented by its common stock together with its
retained earnings is, in the aggregate, less than the involuntary liquidating
value of its then outstanding preferred stock. At December 31, 2001, such
capital ($2.2 billion) amounted to about 14 times the liquidating value of the
outstanding preferred stock ($156 million).
PECO may not declare dividends on any shares of its capital stock in
the event that: (1) PECO exercises its right to extend the interest payment
periods on the Subordinated Debentures which were issued to the Partnership; (2)
PECO defaults on its guarantee of the payment of distributions on the Series C
or Series D Preferred Securities of the Partnership; or (3) an event of default
occurs under the Indenture under which the Subordinated Debentures are issued.
See Item 1. Business - Other Subsidiaries of ComEd and PECO with Publicly Held
Securities.
DIVIDENDS
Under PUHCA and the Federal Power Act, Exelon, ComEd, PECO and
Generation can only pay dividends from retained or current earnings. Similar
restrictions also apply to ComEd
44
under the Illinois Public Utilities Act. An SEC order issued under PUHCA
granted permission to Exelon and ComEd to pay up to $500 million in dividends
out of additional paid-in capital, provided that Exelon agreed not to pay
dividends out of paid-in capital after December 31, 2002 if its common equity is
less than 30% of its total capitalization. At December 31, 2001, Exelon had
retained earnings of $1.2 billion, which includes ComEd retained earnings of
$257 million, PECO retained earnings of $270 million and Generation retained
earnings of $471 million.
The following table sets forth Exelon's quarterly cash dividends paid
during 2001 and 2000:
2001 2000
---------------------------------------- ----------------------------------------
1st 2nd 3rd 4th 1st 2nd 3rd 4th
(per share) Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
- ----------- ------- ------- ------- ------- -------- -------- ------- -------
Exelon $ 0.55 (1) $ 0.42 $ 0.42 $ 0.43 $ 0.25 $ 0.25 $ 0.25 $ 0.16
------- ------- ------- -------- -------- ------- ------- -------
(1) Exelon did not pay any cash dividends in 2000. The first quarter dividend in
2001 was a pro rata dividend. Unicom and PECO each paid their shareholders pro
rata, per diem dividends from their last regular dividend dates through October
19, 2000. The first quarter of 2001 covered the 119-day period from the date of
the Merger, through the February 15, 2001 record date.
The following table sets forth ComEd and PECO's quarterly common dividend
payments:
2001 2000
---------------------------------------- ----------------------------------------
1st 2nd 3rd 4th 1st 2nd 3rd 4th
(in millions) Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
- ------------- -------- ------- ------- ------- ------- ------- ------- -------
ComEd $ 63 $ 85 $ 105 $ 230 $ 87 $ 75 $ 74 $ 90
PECO $ 45 $ 55 $ 69 $ 173 $ 45 $ 43 $ 43 $ 26
-------- ------- ------- ------- ------- ------- ------- -------
On January 29, 2002, the Board of Directors of Exelon declared a
quarterly dividend of $0.44 per share of Exelon's common stock. This increase of
$0.07 per share annually will result in an annual dividend rate of $1.76 per
share. The new dividend rate reflects Exelon's vertically integrated business
portfolio and its focus on total return to shareholders. The new dividend rate
represents about a 50% payout of the expected 2002 earnings per share from
Exelon's regulated electricity delivery businesses. Exelon intends to grow the
dividend to about a 60% payout of earnings from regulated operations based on
cash flow and earnings growth prospects for Energy Delivery. The payment of
future dividends is subject to approval and declaration by the Board of
Directors each quarter.
ITEM 6. SELECTED FINANCIAL DATA.
EXELON
The information required by this Item is incorporated herein by
reference to "Selected Financial Data" in Exhibit 99-1 to Exelon's Current
Report on Form 8-K dated February 28, 2002.
45
COMED
The selected consolidated financial data presented below has been
derived from the audited financial statements of ComEd. This data is qualified
in its entirety by reference to, and should be read in conjunction with ComEd's
Consolidated Financial Statements and Management's Discussion and Analysis of
Financial Condition and Results of Operations included herein.
The information for the year ended 2000 is presented for the periods
before and after the Merger. For additional information, see ITEM 8. Financial
Statements and Supplementary Data - ComEd, Notes 1 and 3 of the Notes to
Consolidated Financial Statements.
Jan. 1 - Oct. 20 - Jan. 1 -
Dec. 31 Dec. 31 Oct. 19 For the Years Ended December 31,
--------------------------------
(in millions) 2001 2000 2000 1999 1998 1997
- ------------- ------ ------ ------ ------- ------- -------
STATEMENT OF INCOME DATA:
Operating Revenues $ 6,206 $ 1,310 $ 5,702 $ 6,793 $ 7,150 $ 7,076
Operating Income 1,594 338 1,048 1,549 1,387 1,214
Income (Loss) before
Extraordinary Items
And Cumulative Effect
of a Change in
Accounting Principle 607 133 603 651 594 (160)
Extraordinary Item
(net of income taxes) -- -- (4) (28) -- (810)
Cumulative Effect of a
Change in
Accounting Principle
(net of income taxes) -- -- -- -- -- 196
Net Income (Loss)
on Common Stock 607 133 596 599 537 (834)
at December 31,
------------------------------------------------
(in millions) 2001 2000 1999 1998 1997
- ------------- ------- ------ ------- ------- -------
BALANCE SHEET DATA:
Current Assets $ 1,114 $ 2,172 $ 4,045 $ 4,974 $ 1,745
Property, Plant and Equipment, net 7,351 7,657 11,993 13,300 16,622
Deferred Debits and Other Assets 7,251 10,369 6,538 6,583 3,397
------- ------- ------- ------- -------
Total Assets $15,716 $20,198 $22,576 $24,857 $21,764
======= ======= ======= ======= =======
Current Liabilities $ 1,886 $ 1,723 $ 3,427 $ 3,309 $ 2,223
Long-Term Debt 5,850 6,882 6,962 7,677 5,563
Deferred Credits and Other Liabilities 2,568 5,082 6,456 7,770 8,050
Mandatorily Redeemable Preference Stock -- -- 69 171 205
Company-Obligated Mandatorily Redeemable
Preferred Securities of Subsidiary Trusts
Holding the Company's Subordinated Debt
Securities 329 328 350 350 350
Shareholders' Equity 5,083 6,183 5,312 5,580 5,373
------- ------- ------- ------- -------
Total Liabilities and Shareholders' Equity $15,716 $20,198 $22,576 $24,857 $21,764
======= ======= ======= ======= =======
46
PECO
The selected consolidated financial data presented below has been
derived from the audited financial statements of PECO. This data is qualified in
its entirety by reference to, and should be read in conjunction with PECO's
Consolidated Financial Statements and Management's Discussion and Analysis of
Financial Condition and Results of Operations included herein.
For the Years Ended December 31,
----------------------------------------------------
(in millions) 2001 2000 1999 1998 1997
- ------------- -------- ------- ------- ------- --------
STATEMENT OF INCOME DATA:
Operating Revenues $ 3,965 $ 5,950 $ 5,478 $ 5,325 $ 4,601
Operating Income 999 1,222 1,373 1,268 1,006
Income before Extraordinary Items
and Cumulative Effect of a Change in
Accounting Principle 425 487 619 533 337
Extraordinary Items (net of income taxes) -- (4) (37) (20) (1,834)
Cumulative Effect of a Change in
Accounting Principle (net of income taxes) -- 24 -- -- --
Net Income (Loss) on Common Stock 415 497 570 500 (1,514)
at December 31,
--------------------------------------------------
(in millions) 2001 2000 1999 1998 1997
- ------------- -------- ------- ------- ------- --------
BALANCE SHEET DATA:
Current Assets $ 820 $ 1,779 $ 1,221 $ 582 $ 1,003
Property, Plant and Equipment, net 4,047 5,158 5,004 4,804 4,671
Deferred Debits and Other Assets 5,878 7,839 6,862 6,662 6,683
------- ------- ------- ------- --------
Total Assets $10,745 $14,776 $13,087 $12,048 $12,357
======= ======= ======= ======= =======
Current Liabilities $ 1,342 $ 2,974 $ 1,286 $ 1,735 $ 1,619
Long-Term Debt 5,438 6,002 5,969 2,920 3,853
Deferred Credits and Other Liabilities 3,358 3,860 3,738 3,756 3,576
Company-Obligated Mandatorily
Redeemable Preferred Securities 128 128 128 349 352
Mandatorily Redeemable Preferred Stock 19 37 56 93 93
Shareholders' Equity 460 1,775 1,910 3,195 2,864
------- ------- ------- ------- -------
Total Liabilities and Shareholders' Equity $10,745 $14,776 $13,087 $12,048 $12,357
======= ======= ======= ======= ========
47
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
EXELON
The information required by this Item is incorporated herein by
reference to "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in Exhibit 99-2 to Exelon's Current Report on Form 8-K
dated February 28, 2002.
COMED
GENERAL
On October 20, 2000, ComEd became a 99.9% owned subsidiary of Exelon as
a result of the transactions relating to the Merger. As a result of the Merger,
ComEd's consolidated financial information for the period after the Merger has a
different cost basis than that of previous periods. Material variances caused by
the different cost basis have been disclosed where applicable.
Through December 31, 2000, ComEd operated as a vertically integrated
electric utility. During January 2001, Exelon undertook a restructuring to
separate its generation and other competitive businesses from its regulated
energy delivery business. As part of the restructuring, the non-regulated
operations and related assets and liabilities of ComEd were transferred to
separate subsidiaries of Exelon. As a result, beginning January 2001, the
operations of ComEd consist of its retail electricity distribution and
transmission business in northern Illinois. The restructuring has had a
significant impact on all components of ComEd's results of operations. The
estimated impact of the restructuring set forth herein reflects the effects of
removing the operations related to ComEd's nuclear generating stations and
obtaining energy and capacity from Generation under the terms of the PPA for the
year ended December 31, 2000.
48
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000
SUMMARY FINANCIAL INFORMATION - COMED
Components of Variance
------------------------------------
Restructuring Normal
(in millions) 2001 2000 Impact Operations Total
- -------------------------------------- ------- ------- -------------- ---------- -------
Operating Revenues $ 6,206 $ 7,012 $ (707) $ (99) $ (806)
Fuel and Purchased Power 2,670 1,977 677 16 693
Operating and Maintenance 981 2,076 (1,072) (23) (1,095)
Merger-Related Costs -- 67 -- (67) (67)
Depreciation and Amortization 665 998 (282) (51) (333)
Taxes Other Than Income 296 508 (131) (81) (212)
------- ------- ------- ------- -------
Total Operating Expenses 4,612 5,626 (808) (206) (1,014)
------- ------- ------- ------- -------
Operating Income 1,594 1,386 101 107 208
------- ------- ------- ------- -------
Interest Expense (565) (596) 43 (12) 31
Distributions on Company-Obligated
Mandatorily Redeemable
Preferred Securities of Subsidiary
Trusts Holding Solely the Company's
Subordinated Debt Securities (30) (30) -- -- --
Other, Net 114 308 -- (194) (194)
------- ------- ------- ------- -------
Income Before Income Taxes and
Extraordinary Items 1,113 1,068 144 (99) 45
Income Taxes 506 332 72 102 174
------- ------- ------- ------- -------
Net Income Before Extraordinary Items 607 736 72 (201) (129)
Extraordinary Items (net of income taxes) -- (4) -- 4 4
Net Income 607 732 72 (197) (125)
Preferred and Preference Stock Dividends -- (3) -- 3 3
------- ------- ------- ------- -------
Net Income on Common Stock $ 607 $ 729 $ 72 $ (194) $ (122)
======= ======= ======= ======= =======
NET INCOME
Net income from normal operations decreased $197 million, or 25% in
2001. Net income was impacted by $107 million in increased operating income
offset by a higher effective tax rate and a $194 million decrease in other
income and deductions primarily attributable to a gain on the forward share
purchase arrangement recognized during 2000 and a reduction in intercompany
interest income in 2001 as compared to 2000.
49
OPERATING REVENUES
Bundled service reflects deliveries to customers taking electric
service under tariffed rates, which include the cost of energy and the delivery
cost of the transmission and distribution of the energy. Unbundled service
reflects customers electing to receive electric generation service from the PPO
or an ARES. Revenue from customers choosing the PPO includes an energy charge at
market rates, transmission and distribution charges and a CTC charge. Revenue
from customers choosing an ARES includes a distribution charge and a CTC charge.
Transmission charges received from ARES are included in wholesale and
miscellaneous revenue. ComEd's electric sales statistics are as follows:
Retail Deliveries - (in megawatthours (MWh)) 2001 2000 Variance
---------- ---------- ----------
BUNDLED DELIVERIES
Residential 25,281,880 23,997,261 1,284,619
Small Commercial & Industrial 23,435,141 24,832,551 (1,397,410)
Large Commercial & Industrial 10,305,130 15,348,098 (5,042,968)
Public Authorities & Electric Railroads 7,879,260 7,664,309 214,951
---------- ---------- ----------
66,901,411 71,842,219 (4,940,808)
========== ========== ==========
UNBUNDLED DELIVERIES
Small Commercial & Industrial - PPO 3,279,491 1,433,337 1,846,154
- ARES 2,865,423 2,772,316 93,107
Large Commercial & Industrial - PPO 5,749,995 2,812,524 2,937,471
- ARES 5,457,847 5,806,535 (348,688)
Public Authorities & Electric Railroads - PPO 986,756 1,087,524 (100,768)
- ARES 364,998 297,048 67,950
---------- ---------- ----------
18,704,510 14,209,284 4,495,226
---------- ---------- ----------
TOTAL RETAIL DELIVERIES 85,605,921 86,051,503 (445,582)
========== ========== ==========
Electric Revenue (in millions) 2001 2000 Variance
---------- ---------- ----------
BUNDLED REVENUE
Residential $ 2,308 $ 2,235 $ 73
Small Commercial & Industrial 1,821 1,949 (128)
Large Commercial & Industrial 523 811 (288)
Public Authorities & Electric Railroads 430 424 6
---------- ---------- ----------
5,082 5,419 (337)
---------- ---------- ----------
UNBUNDLED REVENUE
Small Commercial & Industrial- PPO 220 92 128
- ARES 48 62 (14)
Large Commercial & Industrial - PPO 343 158 185
- ARES 74 115 (41)
Public Authorities & Electric Railroads - PPO 59 56 3
- ARES 5 7 (2)
---------- ---------- ----------
749 490 259
---------- ---------- ----------
TOTAL ELECTRIC RETAIL REVENUES $ 5,831 $ 5,909 $ (78)
Wholesale and Miscellaneous Revenue 375 396 (a) (21)
---------- ---------- ----------
TOTAL ELECTRIC REVENUE $ 6,206 $ 6,305 $ (99)
========== ========== ==========
(a) Includes the operations of ComEd as if the restructuring had occurred
on January 1, 2000.
50
The changes in electric retail revenues for 2001, as compared to 2000, are
attributable to the following:
(in millions) Variance
--------
Customer Choice $(145)
Weather 103
Revenue Taxes (88)
Other Effects 76
Rate Changes (24)
-----
Electric Retail Revenue $ (78)
-----
o Customer Choice. ComEd non-residential customers have the choice to
purchase energy from other suppliers. This choice generally does not impact
MWh deliveries, but affects revenue collected from customers related to
energy supplied by ComEd. The decrease in revenues reflects customers in
Illinois electing to purchase energy from an ARES or the PPO. As of
December 31, 2001, approximately 18,700 retail customers, representing 22%
of total annual retail deliveries, had elected to purchase energy from the
PPO or an ARES, compared to approximately 9,500 customers, representing 17%
of total annual retail deliveries, as of December 31, 2000.
o Weather. The demand for electricity and gas services is impacted by weather
conditions. Very warm weather in summer months and very cold weather in
other months is referred to as "favorable weather conditions", because
these weather conditions result in increased demand for electricity.
Conversely, mild weather reduces demand. Although weather was moderate in
2001, the weather impact was favorable compared to the prior year as a
result of warmer summer weather offset in part by warmer winter weather in
2001. Cooling degree days increased 11% in 2001 compared to 2000 while
heating degree days decreased 5% in 2001 compared to 2000.
o Revenue taxes. The change in revenue taxes represents a change in
presentation of certain revenue taxes from operating revenue and tax
expense to collections recorded as liabilities resulting from Illinois
legislation. This change in presentation does not affect results of
operations.
o Other Effects. A strong housing construction market in Chicago has
contributed to residential and small commercial and industrial customer
volume growth, partially offset by the unfavorable impact of a slower
economy on large commercial and industrial customers.
o Rate Changes. The decrease in revenues attributable to rate changes
reflects a 5% residential rate reduction, effective October 1, 2001,
required by the Illinois restructuring legislation.
The reduction in Wholesale and Miscellaneous revenues in 2001 as
compared to 2000, as if the restructuring occurred on January 1, 2000, reflects
a $101 million reduction in off-system sales due to the expiration of wholesale
contracts that were offered by ComEd from June 2000 to May 2001 to support the
open access program in Illinois, partially offset by a $58 million increase in
transmission service revenue and the reversal of a $15 million reserve for
revenue refunds to ComEd's municipal customers as a result of a favorable FERC
ruling.
FUEL AND PURCHASED POWER EXPENSE
Fuel and purchased power expense increased $16 million, or 1%, compared
to 2000, excluding the effects of restructuring. The increase in fuel and
purchased power expense was
51
primarily attributable to increases in the weighted
average on-peak/off-peak cost per MWh, offset in part by a decrease in MWhs
purchased.
OPERATING AND MAINTENANCE EXPENSE
Operating and maintenance (O&M) expense decreased $23 million, or 2%,
compared to 2000, excluding the effects of restructuring. The decrease in O&M
expense was primarily attributable to a decrease in customer credit and billing
costs due to process improvements and a decrease in storm restoration and
service reliability costs, partially offset by higher administrative and general
costs.
MERGER-RELATED COSTS
Merger-related costs charged to expense in 2000 were $67 million
consisting of $26 million of direct incremental costs and $41 million for
employee costs. Direct incremental costs represent expenses directly associated
with completing the Merger, including professional fees, regulatory approval,
and other merger integration costs. Employee costs represent estimated severance
payments provided for under Exelon's Merger Separation Plan (MSP) for eligible
employees whose positions were eliminated before October 20, 2000 due to
integration activities of the merged companies.
DEPRECIATION AND AMORTIZATION EXPENSE
Depreciation and amortization expense decreased $51 million, or 7%,
compared to 2000, excluding the effects of restructuring. Regulatory asset and
decommissioning amortization decreased $180 million primarily due to the gain on
the settlement of the common stock forward purchase arrangement in the first
quarter of 2000, partially offset by a $103 million increase in goodwill
amortization representing the impact of a full year of amortization expense in
2001 and a $26 million increase in depreciation expense from increased plant in
service due to continued transmission and distribution capital improvements.
Consistent with the provisions of the Illinois legislation, regulatory assets
may be recovered at amounts that provide ComEd an earned return on common equity
within the Illinois legislation earnings threshold. See ITEM 8. Financial
Statements - ComEd -Note 5- Regulatory Issues. Annual goodwill amortization of
$126 million in 2001 was discontinued in 2002 upon the adoption of SFAS No. 142,
"Goodwill and Other Intangible Assets" (SFAS No. 142).
TAXES OTHER THAN INCOME
Taxes other than income decreased $81 million, or 21%, compared to
2000, excluding the effects of restructuring. The decrease in taxes other than
income was primarily attributable to the effect of the change in certain revenue
taxes from operating revenue and tax expense to collections recorded as
liabilities resulting from Illinois legislation.
INTEREST CHARGES
Interest charges consist of interest expense and distributions on
Company-Obligated Mandatorily Redeemable Preferred Securities of Subsidiary
Trusts. Interest charges increased $12 million, or 2%, compared to 2000,
excluding the effects of restructuring. The increase in interest expense was
primarily attributable to increased interest accrued on estimated tax
liabilities and interest due on amounts payable to affiliates.
OTHER INCOME AND DEDUCTIONS
Other income and deductions, excluding interest charges, decreased $194
million, compared to 2000. The decrease was primarily attributable to the $113
million gain on the forward share purchase arrangement recognized during 2000
and a $115 million reduction in intercompany interest income in 2001 from an
affiliate, Unicom Investment, Inc., reflecting the impact of declining interest
rates and a $850 million reduction in intercompany notes receivable
52
in the fourth quarter of 2000, partially offset by the $38 million loss on the
sale of Cotter Corporation, a ComEd subsidiary, recognized during 2000.
INCOME TAXES
The effective income tax rate was 45.5% in 2001, compared to 31.1% in
2000. The increase in the effective tax rate was primarily attributable to the
effects of the gain on the forward share purchase arrangement recorded in 2000,
which was not recognized for tax purposes, a full year of goodwill amortization
in 2001, which is not deductible for tax purposes, the amortization of certain
recoverable transition costs, which is not deductible for tax purposes and lower
investment tax credit amortization resulting from the application of purchase
accounting in connection with the Merger.
EXTRAORDINARY ITEMS
Extraordinary charges aggregating $6 million ($4 million, net of income
taxes) were incurred in 2000, and consisted of prepayment premiums and the
write-off of unamortized deferred financing costs associated with the early
retirement of debt.
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999
SUMMARY FINANCIAL INFORMATION - COMED
(in millions) 2000 1999 Variance
- ------------- ------ ----- --------
Operating Revenues $ 7,012 $ 6,793 219
Fuel and Purchased Power 1,977 1,549 428
Operating and Maintenance 2,076 2,352 (276)
Merger Related Costs 67 -- 67
Depreciation and Amortization 998 836 162
Taxes Other Than Income 508 507 1
------- ------- -------
Total Operating Expenses 5,626 5,244 382
------- ------- -------
Operating Income 1,386 1,549 (163)
------- ------- -------
Interest Expense (596) (602) 6
Distributions on Company-Obligated
Mandatorily Redeemable
Preferred Securities of Subsidiary
Trusts Holding Solely the Company's
Subordinated Debt Securities (30) (30) --
Other, Net 308 60 248
------- ------- -------
Income Before Income Taxes and
Extraordinary Items 1,068 977 91
Income Taxes 332 326 6
------- ------- -------
Net Income Before Extraordinary Items 736 651 85
Extraordinary Items (net of income taxes) (4) (28) 24
------- ------- -------
Net Income 732 623 109
Preferred and Preference Stock Dividends (3) (24) 21
------- ------- -------
Net Income on Common Stock $ 729 $ 599 $ 130
======= ======= =======
53
NET INCOME
Net income increased $109 million or 18% in 2000 as compared to 1999.
Net income was impacted by a $163 million decrease in operating income, offset
by a $248 million increase in other income and deductions primarily attributable
to a gain on the forward share purchase arrangement recognized during 2000 and
an increase in intercompany interest income in 2000 as compared to 1999.
OPERATING REVENUES
Operating revenues increased $219 million, or 3% from 1999. Revenues
from retail customers decreased $266 million primarily due to unfavorable
weather conditions reflecting a 17% reduction in cooling degree days compared to
the prior year as well as the migration of non-residential customers to ARES or
PPO. Sales for resale increased $467 million primarily due to the favorable
response to wholesale power purchase contracts offered by ComEd from June 2000
to May 2001 to support the open access program in Illinois as well as increased
sales to other utilities as a result of the increased availability of nuclear
generation.
Revenues from retail customers reflect a 3% increase in MWh sales for
2000 as compared to 1999. Residential MWh deliveries increased 1%, while
non-residential deliveries increased 4%. As of December 31, 2000, approximately
9,500 retail customers had elected to purchase energy from an ARES or the PPO,
compared to approximately 4,700 customers as of December 31, 1999. Delivered MWh
sales to such customers of 14.2 million represents 17% of total annual retail
deliveries in 2000.
FUEL AND PURCHASED POWER EXPENSE
Fuel and purchased power expense increased $428 million, or 28% from
1999. The increase in fuel and purchased power expense was primarily
attributable to the effects of the PPAs that ComEd entered into upon the sale of
its fleet of fossil stations in December 1999, which resulted in increased
purchased power costs, but lower fuel, O&M, and depreciation costs.
OPERATING AND MAINTENANCE EXPENSE
O&M expense decreased $276 million, or 12% from 1999. The decrease in
O&M expense was primarily attributable to a reduction in expenses as a result of
the sale of the fossil generation stations in December 1999 as well as shorter
refueling outages and fewer forced outages at nuclear generation stations. The
decrease also reflects costs incurred in 1999 to address billing and collection
problems encountered following the implementation of a new customer information
and billing system in July 1998 and lower administrative and general costs.
These decreases in O&M expenses were partially offset by increased expenses
associated with ComEd's increased efforts to improve the reliability of its
transmission and distribution system.
MERGER-RELATED COSTS
Merger-related costs charged to expense in 2000 were $67 million
consisting of $26 million of direct incremental costs and $41 million for
employee costs. Direct incremental costs represent expenses directly associated
with completing the Merger, including professional fee, regulatory approval, and
other Merger integration costs. Employee costs represent estimated severance
payments provided under Exelon's MSP for eligible employees whose positions were
eliminated before October 20, 2000 due to integration activities of the merged
companies.
DEPRECIATION AND AMORTIZATION EXPENSE
Depreciation and amortization expense increased $162 million, or 19%
from 1999. The increase was primarily attributable to a $220 million increase in
regulatory asset amortization as provided by the Illinois legislation, including
the settlement of the forward share purchase
54
arrangement in 2000. The increase also reflects goodwill amortization of $23
million associated with the Merger, partially offset by an $81 million decrease
in depreciation expense reflecting the fossil station sale and the fair value
adjustment of ComEd's nuclear stations associated with the application of
purchase accounting upon completion of the Merger.
TAXES OTHER THAN INCOME
Taxes other than income for 2000 were consistent with 1999.
INTEREST CHARGES
Interest charges remained consistent from year to year.
OTHER INCOME AND DEDUCTIONS
Other income and deductions, excluding interest charges, increased $248
million from 1999. The increase was primarily attributable to a $168 million
increase in interest income on ComEd's notes receivables from an affiliate,
Unicom Investment Inc., related to the December 1999 sale of the fossil
stations. The increase also reflects the effects of a $113 million gain on the
forward share purchase arrangement that occurred in 2000, compared to the $44
million loss recorded in 1999 on the same arrangement, partially offset by the
$38 million loss on the sale of Cotter Corporation, a ComEd subsidiary,
recognized during 2000.
INCOME TAXES
The effective income tax rate was 31.1% in 2000 compared to 33.4% in
1999. The decrease in the effective tax rate was primarily attributable to the
effects of the gain on the forward share purchase arrangement, compared to the
loss that was recognized in 1999 on the same arrangement, neither of which were
recognized for tax purposes. The decrease was partially offset by the investment
tax credit amortization recorded in 1999 related to the fossil station sale.
EXTRAORDINARY ITEM
ComEd incurred extraordinary charges aggregating $6 million ($4
million, net of tax) and $46 million ($28 million, net of tax) in 2000 and 1999,
respectively, consisting of prepayment premiums and the write-off of unamortized
deferred financing costs associated with the early retirement of debt.
LIQUIDITY AND CAPITAL RESOURCES
ComEd's capital resources are primarily provided by internally
generated cash flows from operations and, to the extent necessary, external
financing including the issuance of commercial paper. ComEd's access to external
financing at reasonable terms is dependent on its credit ratings and the general
business condition of ComEd and the industry. ComEd's business is capital
intensive. Capital resources are used primarily to fund ComEd's capital
requirements, including construction, repayments of maturing debt, and the
payment of common stock dividends to Exelon.
CASH FLOWS FROM OPERATING ACTIVITIES
Cash flows provided by operations were $1.4 billion in 2001. ComEd's
cash flow from operating activities primarily results from sales of electricity
to a stable and diverse base of retail customers at fixed prices. ComEd's future
cash flows will depend upon the ability to achieve cost savings in operations,
and the impact of the economy, weather, and customer choice on its revenues.
Although the amounts may vary from period to period as a result of uncertainties
55
inherent in the business, ComEd expects to continue to provide a reliable and
steady source of internal cash flow from operations for the foreseeable future.
CASH FLOWS FROM INVESTING ACTIVITIES
Cash flows used in investing activities were $441 million in 2001.
ComEd's $400 million note receivable from PECO was repaid in the second quarter
of 2001. ComEd's capital expenditures were $839 million in 2001 and are expected
to be approximately $781 million in 2002.
Approximately two-thirds of the budgeted 2002 expenditures are for
additions or upgrades to existing facilities, including reliability
improvements. The remaining one third is for capital additions to support
customer and load growth. ComEd anticipates that it will obtain financing, when
necessary, through borrowings, the issuance of preferred securities, or capital
contributions from Exelon. ComEd's proposed capital expenditures and other
investments are subject to periodic review and revision to reflect changes in
economic conditions and other factors.
CASH FLOWS FROM FINANCING ACTIVITIES
Cash flows used in financing activities were $1.0 billion in 2001
primarily attributable to debt service and payments of dividends to Exelon.
ComEd's debt financing activities in 2001 reflected the retirement of $340
million of transitional trust notes and the early retirement of $196 million in
First Mortgage Bonds with available cash. ComEd expects that its common stock
dividend payments to Exelon will approximate 60% of its net income in 2002.
CREDIT ISSUES
ComEd meets its short-term liquidity requirements primarily through the
issuance of commercial paper, borrowings under bank credit facilities and
borrowings from the Exelon intercompany money pool. ComEd, along with Exelon,
PECO, and Generation are parties to a $1.5 billion unsecured 364-day revolving
credit facility on December 12, 2001 with a group of banks. ComEd has a $300
million sublimit under the credit facility and uses the credit facility
principally to support its $300 million commercial paper program. The credit
facility requires ComEd to maintain a debt to total capitalization ratio of 65%
or less (excluding transitional trust notes). At December 31, 2001, ComEd's debt
to total capitalization ratio on that basis was 45%. At December 31, 2001, ComEd
had no short-term borrowings.
ComEd's access to the capital markets, including the commercial paper
market, and its financing costs in those markets are dependent on its securities
ratings. None of ComEd's borrowings are subject to default or prepayment as a
result of a downgrading of securities ratings although such a downgrading could
increase interest charges under certain bank credit facilities. ComEd from time
to time enters into interest rate swaps and other derivatives that require the
maintenance of investment grade ratings. Failure to maintain investment grade
ratings would allow the counterparty to terminate the derivative and settle the
transaction on a net present value basis.
Under PUHCA and the Federal Power Act, ComEd can only pay dividends
from retained or current earnings. However, the SEC has authorized ComEd to pay
up to $500 million in dividends out of additional paid-in capital, provided
after December 31, 2001 ComEd may not pay dividends out of paid-in capital if
its common equity is less than 30% of its total capitalization (including
transitional trust notes). At December 31, 2001, ComEd had retained earnings of
$257 million.
56
Effective January 1, 2001, Exelon contributed to ComEd a $1.1 billion
non-interest bearing receivable for the purpose of funding future income tax
payments resulting from the collection of instrument funding charges. Exelon
repaid $125 million of this outstanding receivable during the fourth quarter of
2001 and the remainder will be repaid in the years 2002 through 2008. See ITEM
8. Financial Statements - ComEd - Note 17 - Related-Party Transactions.
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
ComEd's contractual obligations as of December 31, 2001 representing
cash obligations that are considered to be firm commitments are as follows:
Payment Due within
-------------------------- Due After
(in millions) Total 1 Year 2-3 Years 4-5 Years 5 Years
- ------------- ----- ------ --------- --------- ---------
Long-Term Debt $6,821 $ 849 $1,276 $1,576 $3,120
Operating Leases 186 28 51 39 68
Company-Obligated Mandatorily
Redeemable Preferred Securities of
Subsidiary Trusts Holding the Company's
Subordinated Debt Securities 350 -- -- -- 350
------ ------ ------ ------ ------
Total Contractual Obligations $7,357 $ 877 $1,327 $1,615 $3,538
====== ====== ====== ====== ======
See ITEM 8. Financial Statements and Supplementary Data - ComEd, Notes
to Consolidated Financial Statements for additional information about:
o long-term debt see Note 10
o operating leases see Note 16
o Company-Obligated Mandatorily Redeemable Preferred Securities of
Subsidiary Trusts Holding the Company's Subordinated Debt Securities
see Note 13
57
ComEd's commercial commitments as of December 31, 2001 representing
commitments triggered by future events, including financing arrangements to
secure obligations of ComEd, are as follows:
Expiration within After
------------------------------------- -------
(in millions) Total 1 Year 2-3 Years 4-5 Years 5 Years
- ------------- ----- ------ --------- --------- -------
Available Lines of Credit (a) $300 $300 $-- $ -- $ --
Letters of Credit (non-debt) (b) 1 1 -- -- --
Letter of Credit (Long-term Debt) (c) 92 -- 92 -- --
---- ---- --- ---- ------
Total Commercial Commitments $393 $301 $92 $ -- $ --
==== ==== === ==== ======
(a) Lines of Credit - ComEd, along with Exelon, PECO, and Generation, maintain
a $1.5 billion 364-day credit facility to support commercial paper
issuances. ComEd has a $300 million sublimit under the credit facility. At
December 31, 2001, there are no borrowings against the credit facility.
(b) Letters of Credit (non-debt) - ComEd maintains non-debt letters of credit
to provide credit support for certain transactions as requested by third
parties.
(c) Letters of Credit (Long-Term Debt) - Direct-pay letters of credit issued in
connection with variable-rate debt in order to provide liquidity in the
event that it is not possible to remarket all of the debt as required
following specific events, including changes in the basis of determining
the interest rate on the debt.
As part of a settlement agreement between ComEd and the City of Chicago
relating to ComEd's Chicago franchise agreement, ComEd and Chicago agreed to a
revised combination of ongoing work under the franchise agreement and new
initiatives that total approximately $1 billion in defined transmission and
distribution expenditures by ComEd to improve electric service in Chicago, of
which approximately $940 million has been expended through December 31, 2001.
OTHER FACTORS
ComEd participates in defined benefit pension plans and postretirement
welfare sponsored by Exelon. Essentially all ComEd employees are eligible to
participate in these plans. In 2001, ComEd's former plans were consolidated into
the Exelon plans. Essentially all ComEd management employees, and electing union
employees, hired on or after January 1, 2001 are eligible to participate in the
newly established Exelon cash balance pension plan. Management employees who
were active participants in the former ComEd pension plans on December 31, 2000
and remain employed by ComEd on January 1, 2002, will have the opportunity to
continue to participate in the pension plan or to transfer to the cash balance
plan. Participants in the cash balance plan, unlike participants in the other
defined benefit plans, may request a lump-sum cash payment upon employee
termination which may result in increased cash requirements from pension plan
assets. ComEd may be required to increase future funding to the pension plan as
a result of these increased cash requirements.
Due to the performance of the United States debt and equity markets in
2001, the value of assets held in trusts to satisfy the obligations of pension
and postretirement benefit plans has decreased. Also, as a result of the Merger
and corporate restructuring, there was a larger than average number of employees
taking advantage of retirement benefits in 2001. These factors may also result
in additional future funding requirements of the pension and postretirement
benefit plans.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally
accepted accounting principles requires that management apply accounting
policies and make estimates and assumptions that affect results of operations
and the reported amounts of assets and liabilities in the financial statements.
The following areas represent those that management believes are particularly
important to the financial statements and that require the use of estimates and
assumptions to describe matters that are inherently uncertain:
REGULATORY ASSETS AND LIABILITIES
Regulatory assets represent incurred costs that have been deferred
because they are probable of future recovery in customer rates. Regulatory
liabilities represent previous collections from customers to fund costs that
have not yet been incurred.
58
ComEd is currently subject to rate freezes that limit the opportunity
to recover increased expenses and the costs of new investment in facilities
through rates during the rate freeze period. Current rates include the recovery
of ComEd's existing regulatory assets. ComEd continually assesses whether the
regulatory assets are probable of future recovery by considering factors such as
applicable regulatory environment changes, recent rate orders to other regulated
entities in the same jurisdiction, and the status of any pending or potential
deregulation legislation. If future recovery of costs ceases to be probable, the
assets would be required to be recognized in current period earnings.
UNBILLED ENERGY REVENUES
Revenues related to the sale of energy are generally recorded when
service is rendered or energy is delivered to customers. However, the
determination of the energy sales to individual customers is based on the
reading of their meters, which occurs on a systematic basis throughout the
month. At the end of each month, amounts of energy delivered to customers since
the date of the last meter reading are estimated and the corresponding unbilled
revenue is estimated. This unbilled revenue is estimated each month based on
daily generation volumes, estimated customer usage by class, line losses and
applicable customer rates based on regression analyses reflecting significant
historical trends and experience. Customer accounts receivable as of December
31, 2001 include unbilled energy revenues of $261 million on a base of annual
revenue of $6.2 billion.
ACCOUNTING FOR DERIVATIVE INSTRUMENTS
ComEd utilizes derivatives to effectively convert fixed rate debt to
floating rate debt, manage its exposure to fluctuation in interest rates related
to planned future debt issuances as well as exposure to changes in the fair
value of outstanding debt that is planned for early retirement. Derivative
financial instruments are accounted for under SFAS No. 133. Hedge accounting has
been used for all interest rate derivatives to date based on the probability of
the transaction and the expected highly effective nature of the hedging
relationship between the interest rate swap contract and the interest payment or
changes in fair value of the hedged debt. Dealer quotes are available for all of
ComEd's interest rate swap agreement derivatives. Accounting for derivatives
continues to evolve through guidance issued by the Derivatives Implementation
Group (DIG) of the FASB. To the extent that changes by the DIG modify current
guidance, including the normal purchases and normal sales determination, the
accounting treatment for derivatives may change.
ENVIRONMENTAL COSTS
As of December 31, 2001 ComEd had accrued liabilities of $105 million
for environmental investigation and remediation costs. The liabilities are based
upon estimates with respect to the number of sites for which ComEd will be
responsible, the scope and cost of work to be performed at each site, the
portion of costs that will be shared with other parties and the timing of the
remediation work. Where timing and amounts of expenditures can be reliably
estimated, amounts are discounted. Where timing and amounts cannot be reliably
estimated, a range is estimated and the low end of the range is recognized on an
undiscounted basis. Estimates can be affected by factors including future
changes in technology, changes in regulations or requirements of local
governmental authorities and actual costs of disposal.
59
OUTLOOK
GENERAL
ComEd's primary objectives are to deliver reliable service, to improve
customer service and to sustain productive regulatory relationships. Achieving
these goals is expected to maximize the value of ComEd's energy delivery assets.
Under restructuring regulations adopted at the Federal and state
levels, the role of electric utilities in the supply and delivery of energy is
changing. ComEd continues to be obligated to provide reliable delivery systems
under cost-based rates. It remains obligated, as a POLR, to supply generation
service during the transition period to a competitive supply marketplace to
customers who do not or cannot choose an alternate supplier. Retail competition
for generation services has resulted in reduced revenues from regulated rates
and the sale of increasing amounts of energy at market-based rates under the
PPO.
ComEd's revenues are affected by rate reductions and rate freezes
currently in effect. The rate freeze limits ComEd's ability to recover increased
expenses and the costs of investments in new transmission and distribution
facilities through rates. As a result, ComEd's future results of operations will
be dependent on its ability:
o to deliver electricity to its customers cost-effectively, particularly in
light of the current capital expenditure requirements and caps on rates,
o to realize cost savings and synergies from the Merger to offset increased
costs on new investments and inflation while its delivery rates are capped
and,
o to manage its provider of last resort responsibilities.
ComEd's results of operations will be affected by a legislatively
mandated 5% residential base rate reduction that became effective in October
2001, a base rate freeze that will remain generally effective until at least
January 1, 2005 and the collection of transition charges through 2006.
ComEd's obligations to make capital expenditures, combined with the
rate freeze, could affect its earnings during the rate freeze period. ComEd is
obligated to make capital expenditures with respect to its transmission and
distribution system, including defined projects within the City of Chicago
(City) as a result of a settlement agreement with the City totaling
approximately $1 billion and at least $2 billion during the period 1999 through
2004 on transmission and distribution facilities outside of the City as a result
of Illinois legislation. Given ComEd's commitments to improve the reliability of
its transmission and distribution system, ComEd expects that its capital
expenditures will exceed depreciation on its rate base assets through at least
2002. The base rate freeze will generally preclude rate recovery of and on those
investments prior to January 1, 2005. Unless ComEd can offset the additional
carrying costs against cost savings, its return on investment may be reduced
during the period of the rate freeze and until rate increases are approved
authorizing a return of and on this new investment.
All of ComEd's non-residential customers have the right to choose their
electricity suppliers, and all of its residential customers will have this right
as of May 1, 2002. At December 31, 2001, approximately 21% of ComEd's small
commercial and industrial load, 52% of its large commercial and industrial load,
and 15% of its public authority & electric railroad load were purchasing their
electric energy from an ARES or the PPO.
ComEd has entered into long-term agreements with Generation to procure
its power
60
needs and achieve some certainty during the next several years with
respect to its POLR obligations. ComEd's agreement allows it to obtain
sufficient power to meet its power needs at fixed rates.
In Illinois, utilities are required to offer bundled rates frozen at
levels established prior to restructuring legislation until January 2005. The
POLR issue requires resolution in the near term, as the answer will affect
pricing, competitive market development and planning by utilities, alternate
suppliers and customers. ComEd has made an informal proposal, regarding its
future provider of last resort obligations. The proposal seeks to balance the
desire for a reliable supply of electricity at a reasonable price with more
price certainty for smaller customers, such as residential customers, while
continuing to develop a functioning competitive wholesale market for generation
services. The proposal offers large customers a default power and energy
offering at spot market rates, thereby freeing the utility from maintaining a
long-term portfolio and making that capacity available to alternative suppliers.
The proposal affords certainty of supply for large customers, but not price
certainty. Recognizing that small customers may not yet have the same
competitive options as large customers, the proposal offers small customers both
supply and price certainty, protecting those customers from market volatility.
The proposal would require regulatory action in order to become effective, and
no assurance can be provided as to the timing of such action or the ultimate
result of such action.
Transmission. ComEd provides wholesale and unbundled retail
transmission service under rates established by FERC. FERC has used its
regulation of transmission to encourage competition for wholesale generation
services and the development of regional structures to facilitate regional
wholesale markets. In December 1999, FERC issued Order No. 2000 requiring
jurisdictional utilities to file a proposal to form an RTO or, alternatively, to
describe efforts to participate in or work toward participating in an RTO or
explain why they were not participating in an RTO. Order 2000 is generally
designed to separate the governance and operation of the transmission system
from generation companies and other market participants.
In response to Order 2000, ComEd and several other utilities filed a
business plan in August 2001 with FERC describing the creation of Alliance
Transco as an independent, for-profit transmission company. In connection with
the process leading to the FERC filing, ComEd issued a non-binding declaration
of intent to divest to Alliance Transco transmission facilities having a gross
book value in excess of $1 billion. In a related action, ComEd entered into a
non-binding memorandum of understanding with National Grid, the proposed manager
of Alliance Transco, setting forth general principles relating to the
divestiture and Alliance Transco as a basis for further discussion.
On December 20, 2001, FERC issued several orders relating to RTOs
operating in the Midwest. In those orders, FERC, among other things, approved
MISO as an RTO and found that Alliance Transco lacked sufficient scope to be a
stand-alone RTO. FERC also directed the Alliance participants to explore with
the MISO how the participants' business plan can be accommodated with the MISO
operational framework and dismissed the business plan filed in August 2001 by
the Alliance participants. In addition, FERC determined that National Grid is
not a market participant within the meaning of Order 2000 and, thus, is eligible
to become the managing member of Alliance Transco if that entity is formed. FERC
further directed the Alliance participants to file a statement of their plans to
join an RTO, including timeframes, within 60 days. As a result of the FERC
orders, representatives of ComEd and the other Alliance participants are
exploring various RTO participation options and are meeting with representatives
of MISO to explore how the Alliance Transco may operate under the MISO. The
Alliance participants, including ComEd, filed their discussions with MISO at the
FERC in February 2002,
61
noting progress as to some issues, but also noted negotiations were ongoing.
The Alliance participants also noted that they were exploring the possibility of
filing their business plan within an RTO other than MISO.
Following further discussions, the Alliance participants and the
National Grid concluded that further negotiations with the MISO required policy
resolutions from FERC. Accordingly, on March 6, 2002, the Alliance participants
and National Grid submitted a petition to FERC for a declaratory order finding
that the proposed policy resolutions contained in the petition provide an
appropriate basis for the participation of the Alliance participants in the
MISO. The filing requests FERC to approve a proposed division of
responsibilities between National Grid and the MISO. It also seeks approval to
use existing systems for startup of operations in order to speed up initial
operations. It requests approval for the Alliance participants to purchase
services from the MISO at incremental costs, and that the MISO refund the $60
million withdrawal fee, plus interest, to ComEd, Illinois Power, and Ameren, of
which ComEd's portion is $36 million. The $36 million was paid to the MISO by
ComEd in May 2001 under a FERC approved settlement agreement allowing ComEd,
Illinois Power, and Ameren to withdraw from the MISO to join the Alliance
Transco.
OTHER FACTORS
Inflation affects ComEd through increased operating costs and increased
capital costs for electric plant. As a result of the rate freeze imposed under
the legislation in Illinois and price pressures due to competition, ComEd may
not be able to pass the costs of inflation through to customers.
ComEd participates in defined benefit pension plans and postretirement
welfare sponsored by Exelon. Essentially all ComEd employees are eligible to
participate in these plans. In 2001, ComEd's former plans were consolidated into
the Exelon plans. Exelon adopted an amendment to the former ComEd postretirement
medical benefit plan that changed the eligibility requirement of the plan to
cover employees taking their pensions with ten years of service after age 45
rather than ten years of service and having attained the age of 55.
ComEd's costs of providing pension and postretirement benefits to its
retirees is dependent upon a number of factors, such as the discount rate, rates
of return on plan assets, and the assumed rate of increase in health care costs.
Although ComEd's pension and postretirement expense is determined using
three-year averaging and is not as vulnerable to a single year's change in
rates, these costs are expected to increase in 2002 and beyond as the result of
the above noted plan changes along with the affects of the decline in market
value of plan assets, changes in appropriate assumed rates of return on plan
assets and discount rates, and increases in health care costs. For a discussion
of ComEd's pension and postretirement benefit plans, see ITEM 8. Financial
Statements - ComEd -Note 12- Retirement Benefits.
Environmental. ComEd's operations have in the past and may in the
future require substantial capital expenditures in order to comply with
environmental laws. Additionally, under Federal and state environmental laws,
ComEd is generally liable for the costs of remediating environmental
contamination of property now or formerly owned by ComEd and of property
contaminated by hazardous substances generated by ComEd. ComEd owns or leases a
number of real estate parcels, including parcels on which its operations or the
operations of others may have resulted in contamination by substances that are
considered hazardous under environmental laws. ComEd has identified 44 sites
where former manufactured gas plant (MGP) activities have or may have resulted
in actual site contamination. ComEd is currently involved in a number of
proceedings relating to sites where hazardous substances have been deposited and
may be subject
62
to additional proceedings in the future.
As of December 31, 2001 and 2000, ComEd had accrued $105 million and
$117 million, respectively, for environmental investigation and remediation
costs, including $100 million and $110 million, respectively, (reflecting
discount rates of 5.5%) for MGP investigation and remediation that currently can
be reasonably estimated. ComEd expects to expend $28 million for environmental
remediation activities in 2002. ComEd cannot predict whether it will incur other
significant liabilities for any additional investigation and remediation costs
at these or additional sites identified by ComEd, environmental agencies or
others, or whether such costs will be recoverable from third parties.
Security Issues and Other Impacts of Terrorist Actions. The events of
September 11, 2001 have affected ComEd's operating procedures and costs and are
expected to affect the cost and availability of the insurance coverages that
ComEd carries. ComEd has initiated security measures to safeguard its employees
and critical operations and is actively participating in industry initiatives to
identify methods to maintain the reliability of its delivery systems. It is
expected that governmental authorities will be working to ensure that emergency
plans are in place and that critical infrastructure vulnerabilities are
addressed. The electric utility industry is proposing security guidelines rather
than government mandated standards to protect critical infrastructures. It is
not known if Federal standards will be issued to the electric or gas industries.
ComEd is evaluating enhanced security measures at certain critical locations,
enhanced response and recovery plans and assessing longer term design changes
and redundancy measures. These measures will involve additional expense to
develop and implement.
ComEd carries property damage and liability insurance for its
properties and operations. As a result of significant changes in the insurance
marketplace, due in part to the September 11, 2001 terrorist acts, the available
coverage and limits may be less than the amount of insurance obtained in the
past, and the recovery for losses due to terrorists acts may be limited.
ComEd is self-insured to the extent that any losses may exceed the
amount of insurance maintained. Damage to ComEd's properties could disrupt the
transmission or distribution of electricity and significantly and adversely
affect results of operations. ComEd cannot predict the effects on operations of
the availability of property damage and liability coverage or any disruptions to
its delivery facilities.
NEW ACCOUNTING PRONOUNCEMENTS
In 2001, the FASB issued SFAS No. 141, "Business Combinations" (SFAS No.
141), SFAS No. 142, SFAS No. 143, "Asset Retirement Obligations" (SFAS No. 143),
and SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" (SFAS No. 144).
SFAS No. 141 requires that all business combinations be accounted for
under the purchase method of accounting and establishes criteria for the
separate recognition of intangible assets acquired in business combinations.
SFAS No. 141 is effective for business combinations initiated after June 30,
2001.
SFAS No. 142 establishes new accounting and reporting standards for
goodwill and intangible assets. ComEd adopted SFAS No. 142 as of January 1,
2002. Under SFAS No. 142, effective January 1, 2002, goodwill recorded by ComEd
is no longer subject to amortization. After January 1, 2002, goodwill will be
subject to an assessment for impairment using a two-step fair value based test,
the first step of which must be performed at least annually, or more
63
frequently if events or circumstances indicate that goodwill might be impaired.
The first step compares the fair value of a reporting unit to its carrying
amount, including goodwill. If the carrying amount of the reporting unit exceeds
its fair value, the second step is performed. The second step compares the
carrying amount of the goodwill to the fair value of the goodwill. If the fair
value of goodwill is less than the carrying amount, an impairment loss would be
reported as a reduction to goodwill and a charge to operating expense, except at
the transition date, when the loss would be reflected as a cumulative effect of
a change in accounting principle. As of December 31, 2001, ComEd's Consolidated
Balance Sheets reflected approximately $4.9 billion in Goodwill net of
accumulated amortization. Annual amortization of goodwill of $126 million was
discontinued upon adoption of SFAS No. 142. In the first quarter of 2002, ComEd
completed the first step of the transitional impairment analysis which indicated
that its goodwill is not impaired.
SFAS No. 143 provides accounting requirements for retirement
obligations associated with tangible long-lived assets. Retirement obligations
associated with long-lived assets included within the scope of SFAS No. 143 are
those for which there is a legal obligation to settle under existing or enacted
law, statute, written or oral contract or by legal construction under the
doctrine of promissory estoppel. This statement is effective for fiscal years
beginning after June 15, 2002 with initial application as of the beginning of
the fiscal year. ComEd is in the process of evaluating the impact of SFAS No.
143 on its financial statements.
SFAS No. 144 establishes accounting and reporting standards for both
the impairment and disposal of long-lived assets. This statement is effective
for fiscal years beginning after December 15, 2001 and provisions of this
statement are generally applied prospectively. ComEd is in the process of
evaluating the impact of SFAS No. 144 on its financial statements and does not
expect the impact to be material.
PECO
GENERAL
On October 20, 2000, PECO became a wholly owned subsidiary of Exelon as
a result of the transactions relating to the Merger.
During January 2001, Exelon undertook a restructuring to separate its
generation and other competitive businesses from its regulated energy delivery
business. As part of the restructuring, the non-regulated operations and related
assets and liabilities of PECO, representing the generation and enterprises
business segments, were transferred to separate subsidiaries of Exelon. As a
result, beginning January 2001, the operations of PECO consist of its retail
electricity distribution and transmission business in southeastern Pennsylvania
and its natural gas distribution business located in the Pennsylvania counties
surrounding the City of Philadelphia. The estimated impact of the restructuring
set forth herein reflects the effects of removing the generation and enterprises
operations and obtaining energy and capacity from Generation under the terms of
the PPA for the year ended December 31, 2000.
64
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000
SUMMARY FINANCIAL INFORMATION - PECO
Components of Variance
----------------------------
Restructuring Normal
(in millions) 2001 2000 Impact Operations Total
- ------------- -------- ------- ---------- ---------- --------
Operating Revenues $ 3,965 $ 5,950 $(2,577) $ 592 $(1,985)
Fuel and Purchased Power 1,802 2,127 (793) 468 (325)
Operating and Maintenance 587 1,791 (1,299) 95 (1,204)
Merger-Related Costs -- 248 (181) (67) (248)
Depreciation and Amortization 416 325 (142) 233 91
Taxes Other Than Income 161 237 (71) (5) (76)
------- ------- ------- ------- -------
Total Operating Expenses 2,966 4,728 (2,486) 724 (1,762)
------- ------- ------- ------- -------
Operating Income 999 1,222 (91) (132) (223)
------- ------- ------- ------- -------
Interest Expense (413) (457) 48 (4) 44
Distributions on Company-Obligated
Mandatorily Redeemable
Preferred Securities of a Partnership,
which holds Solely Subordinated
Debentures of the Company (10) (8) -- (2) (2)
Equity in Earnings (Losses) of
Unconsolidated Affiliates, Net -- (41) 41 -- 41
Other, Net 46 41 (19) 24 5
------- ------- ------- ------- -------
Income Before Income Taxes, Extraordinary Item
and Cumulative Effect of a Change of
Accounting Principle 622 757 (21) (114) (135)
Income Taxes 197 270 26 (99) (73)
------- ------- ------- ------- -------
Net Income Before Extraordinary Item and
Cumulative Effect of a Change of
Accounting Principle 425 487 (47) (15) (62)
Extraordinary Item (net of income taxes) -- (4) -- 4 4
Cumulative Effect of a Change
of Accounting Principle -- 24 (24) -- (24)
------- ------- ------- ------- -------
Net Income 425 507 (71) (11) (82)
Preferred Stock Dividends (10) (10) -- -- --
------- ------- ------- ------- -------
Net Income on Common Stock $ 415 $ 497 $ (71) $ (11) $ (82)
======= ======= ======= ======= =======
NET INCOME
Net income from normal operations decreased $11 million, or 3% in 2001 as
compared to 2000. PECO's results from normal operations improved as a result of
lower margins due to the unplanned return of certain commercial and industrial
customers, milder weather, increased depreciation and amortization expense and
higher interest expense partially offset by favorable rate adjustments.
65
OPERATING REVENUES
Bundled service reflects deliveries to customers taking electric
service under tariffed rates, which include the cost of energy, the delivery
cost of the transmission and distribution of the energy and a CTC/ITC charge.
Unbundled service reflects customers electing to receive electric generation
service from an alternative energy supplier. Revenue from customers receiving
generation from an alternate supplier includes a transmission and distribution
charge and a CTC/ITC charge. PECO's electric sales statistics are as follows:
- --------------------- ---------- ------------ ------------
Deliveries - (in MWh) 2001 2000 Variance
- --------------------- ---------- ------------ ------------
BUNDLED DELIVERIES
Residential 8,072,915 9,324,800 (1,251,885)
Small Commercial & Industrial 5,997,571 3,918,529 2,079,042
Large Commercial & Industrial 12,960,295 8,291,607 4,668,688
Public Authorities & Electric Railroads 765,554 478,809 286,745
---------- ---------- ----------
27,796,335 22,013,745 5,782,590
---------- ---------- ----------
UNBUNDLED DELIVERIES
Residential 3,104,811 1,985,614 1,119,197
Small Commercial & Industrial 1,606,067 3,549,667 (1,943,600)
Large Commercial & Industrial 2,351,520 7,404,363 (5,052,843)
Public Authorities & Electric Railroads 7,285 300,978 (293,693)
----------- ---------- ----------
7,069,683 13,240,622 (6,170,939)
----------- ---------- ----------
TOTAL RETAIL DELIVERIES 34,866,018 35,254,367 (388,349)
=========== ========== ==========
- ------------------------------- ---------- ------------ ------------
Electric Revenues (in millions) 2001 2000 Variance
- ------------------------------- ---------- ------------ ------------
BUNDLED REVENUE
Residential $ 1,028 $ 1,113 $ (85)
Small Commercial & Industrial 682 422 260
Large Commercial & Industrial 929 532 397
Public Authorities & Electric Railroads 72 47 25
------------ ------------ ------------
2,711 2,114 597
------------ ------------ ------------
UNBUNDLED REVENUE
Residential 235 135 100
Small Commercial & Industrial 81 154 (73)
Large Commercial & Industrial 64 180 (116)
Public Authorities & Electric Railroads 1 11 (10)
------------ ------------ ------------
381 480 (99)
------------ ------------ ------------
TOTAL ELECTRIC RETAIL REVENUES 3,092 2,594 498
Wholesale and Miscellaneous Revenue 219 247 (28)
------------ ------------ ------------
TOTAL ELECTRIC REVENUE $ 3,311 $ 2,841 $ 470
============ ============ ============
66
The changes in electric retail revenues for 2001, as compared to 2000,
are as follows:
(in millions) Variance
- ------------- --------
Customer Choice $ 276
Rate Changes 241
Weather (5)
Other Effects (14)
-----
Retail Revenue $ 498
=====
Customer Choice. All PECO customers have choice to purchase energy from
other suppliers. This choice generally does not impact kWh deliveries, but
reduces revenue collected from customers because they are not obtaining
generation supply from PECO. Customers who are served by an alternate supplier
continue to pay competitive transition charges.
As of December 31, 2001, the customer load served by alternate
suppliers was 1,003 MWh or 13.0% as compared to the same prior year period of
2,631 MW or 34.9%. For the year ended December 31, 2001, the percent of MWh
sold by PECO increased by 17.2% to 79.8% of total retail deliveries as compared
to 62.6% in 2000. This reduction in the customer load and the percentage of MWh
served by alternate suppliers, primarily resulted from small and large
commercial and industrial customers selecting or returning to PECO as their
electric generation supplier.
As of December 31, 2001, the number of customers served by alternate
suppliers was 371,500 or 24.4% as compared to December 31, 2000 of 269,395 or
18.0%. The increase from the prior year is primarily a result of the Competitive
Default Service (CDS) agreements for residential customers with the New Power
Company and Green Mountain Energy Company. As of December 31, 2001, there were
227,349 residential customers assigned to these generation providers as part of
the agreement. As of December 31, 2001, the customer load served by a alternate
suppliers was 1,003 MWh or 13.0% as compared to the same prior year period of
2,631 MWh or 34.9%.
Rate Changes. The increase in revenues attributable to rate changes
reflects the expiration of a 6% reduction in PECO's electric rates in effect for
2000, partially offset by a $60 million rate reduction in effect for 2001.
Weather. The demand for electricity and gas services is impacted by
weather conditions. Very warm weather in summer months and very cold weather in
other months is referred to as "favorable weather conditions", because these
weather conditions result in increased demand for electricity. Conversely, mild
weather reduces demand. The weather impact was unfavorable compared to the prior
year as a result of warmer winter weather partially offset by warmer summer
weather. Cooling degree days increased 34% in 2001 compared to 2000 while
heating degree days decreased 12% in 2001 compared to 2000.
Other Effects. Other items affecting revenue during 2001 include:
o Volume. Exclusive of weather impacts, lower delivery volume affected PECO's
revenue by $21 million compared to 2000. Total kWh sales to retail
customers decreased 1% compared to 2000, primarily as a result of less
favorable economic conditions in 2001 offset by customer growth. Large
commercial and industrial sales decreased 2% and residential sales
decreased 1%. These were partially offset by an increase in small
commercial and industrial sales of 2%.
o Other. The payment of $29 million to Generation related to nuclear
decommissioning cost recovery under an agreement effective September 2001
partially offset by an $11 million settlement of competitive transition
charges by a large customer.
67
PECO's gas sales statistics are as follows:
2001 2000 Variance
------ ------ --------
Deliveries in million cubic feet (mmcf) 81,528 91,686 (10,158)
Revenue (in millions) $ 654 $ 532 $ 122
------- ------- --------
The changes in gas revenue for 2001, as compared to 2000, are as
follows:
(in millions) Variance
- ------------ --------
Price $ 174
Weather (38)
Volume (14)
-----
Gas Revenue $ 122
=====
o Price. The favorable variance in price is attributable to an adjustment of
the purchased gas cost recovery by the PUC effective in December 2000. The
average price per million cubic feet for all customers for 2001 was 38%
higher than in 2000. PECO's gas rates are subject to periodic adjustments
by the PUC designed to recover or refund the difference between actual cost
of purchased gas and the amount included in base rates and to recover or
refund increases or decreases in certain state taxes not recovered in base
rates.
o Weather. The unfavorable weather impact is attributable to warmer
temperatures in the non-summer months of 2001 than in 2000 in the PECO
service territory. Heating degree days decreased 12% in 2001 compared to
2000.
o Volume. Exclusive of weather impacts, lower delivery volume affected
revenue by $14 million compared to 2000. Total mmcf sales to retail
customers decreased 11% compared to 2000, primarily as a result of slower
economic conditions in 2001 offset by increased customer growth.
FUEL AND PURCHASED POWER EXPENSE
Fuel and purchased power expense for 2001 increased $468 million, or
35%, as compared to the same 2000 period, excluding the effects of the
restructuring. The increase in fuel and purchased power expense was primarily
attributable to $293 million from customers in Pennsylvania selecting or
returning to PECO as their electric generation supplier, $174 million from
increased prices related to gas and higher PJM ancillary charges of $31 million.
These increases were partially offset by $24 million as a result of unfavorable
weather conditions and $14 million attributable to lower delivery volume related
to gas.
OPERATING AND MAINTENANCE EXPENSE
O&M expense for 2001 increased $95 million, or 19%, as compared to the
same 2000 period, excluding the effects of the restructuring. The increase in
O&M expense was primarily attributable to $20 million related to an increased
allocation of corporate expense, $18 million related to additional employee
severance costs in 2001, $17 million as a result of higher administrative and
general costs for functions previously performed at Corporate, $14 million
related to the deployment of the automated meters during 2001, $12 million of
incremental costs related to two storms in 2001, $9 million related to
additional uncollectible accounts expense and $5 million associated with the
write-off of excess and obsolete inventory.
MERGER-RELATED COSTS
Merger-related costs charged to income in 2000 were $248 million
consisting of $132 million of direct incremental costs and $116 million for
employee costs. Direct incremental costs represent expenses associated with
completing the Merger, including professional fees, regulatory
68
approval and settlement costs, and settlement of compensation arrangements.
Employee costs represent estimated severance payments and pension and
postretirement benefits provided under Exelon's MSP for 642 eligible PECO
employees who are expected to be involuntarily terminated before December 2002
upon completion of integration activities for the merged companies.
Merger-related costs attributable to the operations transferred to Generation,
Enterprises and BSC in the corporate restructuring were $181 million. The
remaining $67 million is attributable to PECO's energy delivery segment. See
Item 8. Financial Statements and Supplementary Data - PECO - Note 2 to
Consolidated Financial Statements.
DEPRECIATION AND AMORTIZATION EXPENSE
Depreciation and amortization expense for 2001 increased $233 million,
or 127%, as compared to the same 2000 period, excluding the effects of the
restructuring. The increase was primarily attributable to $214 million of
additional amortization of PECO's CTC and an increase of $19 million related to
depreciation expense associated with additional plant in service. The additional
amortization of the CTC is in accordance with PECO's original settlement under
the Pennsylvania Competition Act.
TAXES OTHER THAN INCOME
Taxes other than income for 2001 decreased $5 million, or 3%, as
compared to the same 2000 period, excluding the effects of the restructuring.
The decrease was primarily attributable to the elimination of the gross receipts
tax on gas sales effective July 1, 2000.
INTEREST CHARGES
Interest charges consist of interest expense and distributions on
Company-Obligated Mandatorily Redeemable Preferred Securities of a Partnership
(COMRPS). Interest charges increased $6 million, or 1% in 2001. The increase was
primarily attributable to additional interest on the Transition Bonds issued to
securitize PECO's stranded cost recovery of $16 million and interest expense
related to a loan from an affiliate in 2001 of $8 million, partially offset by
the reduction of PECO's long-term debt with the proceeds from Transition Bonds,
which reduced interest charges by $18 million.
EQUITY IN EARNINGS (LOSSES) OF UNCONSOLIDATED AFFILIATES
As part of the corporate restructuring, PECO's unconsolidated
affiliates were transferred to Generation and Enterprises.
OTHER INCOME AND DEDUCTIONS
Other income and deductions excluding interest charges and equity in
earnings (losses) of unconsolidated affiliates increased $24 million, or 109% in
2001 as compared to 2000, excluding the effects of the restructuring. The
increase in other income and deductions was primarily attributable to
intercompany interest income of $10 million in the third quarter of 2001, a gain
on the settlement of an interest rate swap of $6 million and the favorable
settlement of a customer contract of $3 million.
INCOME TAXES
The effective tax rate was 31.7% in 2001 as compared to 35.7% in 2000.
The decrease in the effective tax rate was primarily attributable to tax
benefits associated with the implementation of State tax planning Strategies, a
favorable adjustment to prior period income taxes in connection with the
completion of the 2000 tax return and the reduced impact of investment tax
credit amortization.
69
EXTRAORDINARY ITEMS
In 2000, PECO incurred extraordinary charges aggregating $6 million ($4
million, net of tax) related to prepayment premiums and the write-off of
unamortized deferred financing costs associated with the early retirement of
debt with a portion of the proceeds from the securitization of PECO's stranded
cost recovery in May 2000.
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE
In 2000, PECO recorded a benefit of $40 million ($24 million, net of
tax) representing the cumulative effect of a change in accounting method for
nuclear outage costs in conjunction with the synchronization of accounting
policies in connection with the Merger.
PREFERRED STOCK DIVIDENDS
Preferred stock dividends for 2001 were consistent as compared to 2000.
70
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999
SUMMARY FINANCIAL INFORMATION - PECO
(in millions) 2000 1999 Variance
- ------------- ------- ------- --------
Operating Revenues $5,950 $5,478 $ 472
Fuel and Purchased Power 2,127 2,152 (25)
Operating and Maintenance 1,791 1,454 337
Merger-Related Costs 248 -- 248
Depreciation and Amortization 325 237 88
Taxes Other Than Income 237 262 (25)
------ ------ -----
Total Operating Expenses 4,728 4,105 623
------ ------ -----
Operating Income 1,222 1,373 (151)
------ ------ -----
Interest Expense (457) (396) (61)
Distributions on Company-Obligated
Mandatorily Redeemable
Preferred Securities of a Partnership,
which holds Solely Subordinated
Debentures of the Company (8) (21) 13
Equity in Earnings (Losses) of
Unconsolidated Affiliates, Net (41) (38) (3)
Other, Net 41 59 (18)
------ ------ -----
Income Before Income Taxes, Extraordinary Item
and Cumulative Effect of a Change of
Accounting Principle 757 977 (220)
Income Taxes 270 358 (88)
------ ------ -----
Net Income Before Extraordinary Item and
Cumulative Effect of Changes of
Accounting Principles 487 619 (132)
Extraordinary Item (net of income taxes) (4) (37) 33
Cumulative Effect of Changes
of Accounting Principles 24 -- 24
------ ------ -----
Net Income 507 582 (75)
Preferred Stock Dividends (10) (12) 2
------ ------ -----
Net Income on Common Stock $ 497 $ 570 $ (73)
====== ====== =====
NET INCOME
Net income decreased $75 million, or 13% in 2000, as compared to 1999
reflecting merger related expenses and amortization of CTCs in 2000.
71
OPERATING REVENUES
(in millions, except percentage data) 2000 1999 $ Variance % Variance
- ------------------------------------- ------ ------ ---------- ---------
Energy Delivery $3,373 $3,265 $ 108 3.3%
Generation 1,931 2,097 (166) (7.9)%
Enterprises 646 116 530 456.9%
------ ------ -----
$5,950 $5,478 $ 472 8.6%
====== ====== ====== ---------
Energy Delivery. The increase in operating revenue from energy delivery
was attributable to higher electric revenue of $32 million and additional gas
revenue of $76 million. The increase in electric revenue reflects $102 million
from customers in Pennsylvania selecting PECO as their electric generation
supplier and rate adjustments in Pennsylvania, partially offset by a decrease of
$69 million as a result of lower summer volume. Regulated gas revenue reflected
increases of $44 million related to higher prices, $29 million attributable to
increased volume from new and existing customers and $24 million from increased
winter volume. These increases were partially offset by $21 million of lower
gross receipts tax collections as a result of the repeal of the gross receipts
tax on gas sales in connection with gas restructuring in Pennsylvania.
Generation. The decrease in operating revenue from generation was a
result of lower electric revenue of $180 million partially offset by higher gas
revenue of $14 million. The decrease in electric revenue was principally
attributable to lower sales of competitive retail electric generation services
of $132 million, of which $196 million represented decreased volume that was
partially offset by $64 million from higher prices. In addition, the termination
of the management agreement for Clinton resulted in lower revenues of $99
million. As a result of the acquisition by AmerGen of Clinton in December 1999,
the management agreement was terminated and, accordingly, the operations have
been included in Equity in Earnings (Losses) of Unconsolidated Affiliates on
PECO's Consolidated Statements of Income in 2000. These decreases were partially
offset by an increase of $50 million from higher wholesale revenue attributable
to $199 million associated with higher prices partially offset by $149 million
related to lower volume. Unregulated gas revenue increased primarily as a result
of $11 million from wholesale sales of excess natural gas.
Enterprises. The increase in operating revenue from enterprises was
attributable to $530 million from the acquisition of thirteen infrastructure
services companies during 2000 and 1999.
FUEL AND PURCHASED POWER EXPENSE
(in millions, except percentage data) 2000 1999 $ Variance % Variance
- ------------------------------------- ------ ------ ---------- ---------
Energy Delivery $ 462 $ 370 $ 92 24.9%
Generation 1,665 1,782 (117) (6.6)%
------ ------ -----
$ 2,127 $ 2,152 $ (25) (1.2)%
====== ====== ===== ---------
Energy Delivery. The increase in fuel and purchased power expense from
energy delivery was primarily attributable to $73 million from additional volume
and increased prices related to gas, $13 million as a result of favorable
weather conditions and $4 million in additional PJM ancillary charges.
72
Generation. The decrease in fuel and purchased power expense from
generation was primarily attributable to $262 million principally related to
reduced sales of competitive retail electric generation services partially
offset by an increase of $120 million in the cost to supply energy delivery
customers and an increase of $5 million from wholesale operations principally
related to $97 million as a result of increased prices partially offset by $92
million as a result of decreased volume.
OPERATING AND MAINTENANCE EXPENSE
(in millions, except percentage data) 2000 1999 $ Variance % Variance
- ------------------------------------- ------- ------- ---------- ----------
Energy Delivery $ 491 $ 434 $ 57 13.1%
Generation 616 721 (105) (14.6)%
Enterprises 650 136 514 377.9%
Corporate 34 163 (129) (79.1)%
------ ------ ------
$1,791 $1,454 $ 337 23.2%
====== ====== ====== -------
Energy Delivery. The increase in O&M expense from energy delivery was
primarily attributable to the direct charging to the business segments of O&M
expenses that were previously reported at PECO Corporate.
Generation. The decrease in O&M expense from generation was primarily
attributable to O&M expenses related to the management agreement for Clinton of
$70 million in 1999 which has since been terminated, $15 million related to the
abandonment of two information system implementations in 1999, $17 million
related to lower administrative and general expenses related to the unregulated
retail sales of electricity and $15 million related to lower joint-owner
expenses.
Enterprises. The O&M expense from enterprises increased $505 million
from the infrastructure services business as a result of acquisitions.
Corporate. PECO Corporate's decrease in O&M expense was primarily
attributable to expenses of $56 million related to lower Year 2000 remediation
expenditures, lower pension and postretirement benefits expense of $31 million
and the direct charging to business segments of O&M expenses that were
previously recorded at Corporate.
MERGER-RELATED COSTS
Merger-related costs charged to income in 2000 were $248 million
consisting of $132 million of direct incremental costs and $116 million for
employee costs. Direct incremental costs represent expenses associated with
completing the Merger, including professional fees, regulatory approval and
settlement costs, and settlement of compensation arrangements. Employee costs
represent estimated severance payments and pension and postretirement benefits
provided under Exelon's MSP for 642 eligible PECO employees who are expected to
be involuntarily terminated before December 2002 upon completion of integration
activities for the merged companies.
DEPRECIATION AND AMORTIZATION EXPENSE
Depreciation and amortization expense increased $88 million, or 37%, to
$325 million in 2000. The increase was primarily attributable to $57 million of
amortization of PECO's CTC which commenced in 2000 and $29 million related to
depreciation and amortization expense associated with the infrastructure
services business acquisitions.
73
TAXES OTHER THAN INCOME
Taxes other than income decreased $25 million, or 10%, to $237 million
in 2000. The decrease was primarily attributable to lower real estate taxes of
$18 million relating to a change in tax laws for utility property in
Pennsylvania and $11 million as a result of the elimination of the gross
receipts tax on natural gas sales net of an increase in gross receipts tax on
electric sales. This decrease was partially offset by a non-recurring $22
million capital stock tax credit related to a 1999 adjustment associated with
the impact of PECO's 1997 restructuring charge.
INTEREST CHARGES
Interest charges consist of interest expense and distributions on
COMRPS. Interest charges increased $48 million, or 12%, to $465 million in 2000.
The increase was primarily attributable to interest on the Transition Bonds
issued to securitize PECO's stranded cost recovery of $104 million, partially
offset by the reduction of PECO's long-term debt with the proceeds from
Transition Bonds, which reduced interest charges by $77 million.
EQUITY IN EARNINGS (LOSSES) OF UNCONSOLIDATED AFFILIATES
Equity in earnings (losses) of unconsolidated affiliates decreased $3
million, or 8%, to losses of $41 million in 2000 as compared to losses of $38
million in 1999. The decrease was primarily attributable to $8 million of
additional losses from communications joint ventures, partially offset by $4
million of earnings from AmerGen as a result of the acquisitions of Clinton and
TMI in December 1999 and Oyster Creek in September 2000.
OTHER INCOME AND DEDUCTIONS
Other income and deductions excluding interest charges and equity in
earnings (losses) of unconsolidated affiliates decreased $18 million, or 31%, to
$41 million in 2000 as compared to $59 million in 1999. The decrease in other
income and deductions was primarily attributable to the writedown of a
communications investment of $33 million, a $10 million gain on the disposal of
assets in 1999 and a decrease in interest income of $2 million. These decreases
were partially offset by a $15 million write-off in 1999 of the investment in a
cogeneration facility in connection with the settlement of litigation and gains
on sales of investments of $13 million.
INCOME TAXES
The effective tax rate was 35.7% in 2000 as compared to 36.6% in 1999.
EXTRAORDINARY ITEMS
In 2000, PECO incurred extraordinary charges aggregating $6 million ($4
million, net of tax) related to prepayment premiums and the write-off of
unamortized deferred financing costs associated with the early retirement of
debt with a portion of the proceeds from the securitization of PECO's stranded
cost recovery in May 2000.
In 1999, PECO incurred extraordinary charges aggregating $62 million
($37 million, net of tax) related to prepayment premiums and the write-off of
unamortized debt costs associated with the repayment and refinancing of debt.
74
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE
In 2000, PECO recorded a benefit of $40 million ($24 million, net of
tax) representing the cumulative effect of a change in accounting method for
nuclear outage costs in conjunction with the synchronization of accounting
policies in connection with the Merger.
PREFERRED STOCK DIVIDENDS
Preferred stock dividends decreased $2 million, or 17%, to $10 million
as compared 1999. The decrease was attributable to the redemption of $37 million
of Mandatorily Redeemable Preferred Stock in August 1999 with a portion of the
proceeds from the issuance of Transition Bonds. In addition, PECO redeemed $19
million of Mandatorily Redeemable Preferred Stock in August 2000.
LIQUIDITY AND CAPITAL RESOURCES
PECO's capital resources are primarily provided by internally generated
cash flows from operations and, to the extent necessary, external financing
including the issuance of commercial paper. PECO's access to external financing
at reasonable terms is dependent on its credit ratings and the general business
condition of PECO and the industry. PECO's business is capital intensive.
Capital resources are used primarily to fund PECO's capital requirements,
including construction, repayments of maturing debt and preferred securities and
payment of common stock dividends to Exelon.
CASH FLOWS FROM OPERATING ACTIVITIES
Cash flows provided by operations for 2001 were $828 million. PECO's
cash flow from operating activities primarily results from sales of electricity
and gas to a stable and diverse base of retail customers at fixed prices. PECO's
future cash flows will depend upon the ability to achieve cost savings in
operations, and the impact of the economy, weather and customer choice on its
revenues. Although the amounts may vary from period to period as a result of the
uncertainties inherent in its business, PECO expects that it will continue to
provide a reliable and steady source of internal cash flow from operations for
the foreseeable future.
CASH FLOWS FROM INVESTING ACTIVITIES
Cash flows used in investing activities for 2001 were $235 million,
primarily for capital expenditures of $264 million. PECO's projected capital
expenditures for 2002 are $279 million.
Approximately one half of the budgeted 2002 expenditures are for
capital additions to support customer and load growth and the remainder for
additions to or upgrades of existing facilities. PECO anticipates that it will
obtain financing, when necessary, through borrowings, the issuance of preferred
securities, or capital contributions from Exelon. PECO's proposed capital
expenditures and other investments are subject to periodic review and revision
to reflect changes in economic conditions and other factors.
CASH FLOWS FROM FINANCING ACTIVITIES
Cash flows used in financing activities were $579 million in 2001
primarily attributable to debt service and payments of dividends to Exelon. Debt
financing activities during 2001 included the refinancing of $805 million in
PECO transition bonds. In 2001, PECO paid Exelon $342 million in common stock
dividends and currently expects that the 2002 dividend will be comparable to
2001.
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CREDIT ISSUES
PECO meets its short-term liquidity requirements primarily through the
issuance of commercial paper, borrowings under bank credit facilities and
borrowings from the Exelon intercompany money pool. PECO, along with Exelon,
ComEd and Generation, are parties to a $1.5 billion unsecured revolving credit
facility with a group of banks. This credit facility is used principally by PECO
to support its commercial paper program. PECO has a $300 million sublimit under
this credit facility.
At December 31, 2001, PECO had outstanding $101 million of notes
payable consisting principally of commercial paper. For 2001, the average
interest rate on notes payable was approximately 2.25%. Certain of the credit
agreements to which PECO is a party requires PECO to maintain a debt to total
capitalization ratio of 65% or less, excluding securitization debt and excluding
the receivable from parent recorded in PECO's shareholders' equity. At December
31, 2001, the debt to total capitalization ratios on that basis for PECO was
38%.
PECO's access to the capital markets, including the commercial paper
market, and its financing costs in those markets are dependent on its securities
ratings. None of PECO's borrowings are subject to default or prepayment as a
result of a downgrading of securities ratings although such a downgrading could
increase interest charges under PECO's bank credit facility. PECO from time to
time enters into interest rate swap and other derivatives that require the
maintenance of investment grade ratings. Failure to maintain investment grade
ratings would allow the counterparty to terminate the derivative and settle the
transaction on a net present value basis.
Under PUHCA and the Federal Power Act, PECO can pay dividends only from
retained or current earnings. At December 31, 2001, PECO had retained earnings
of $270 million.
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
PECO's contractual obligations as of December 31, 2001 representing
cash obligations that are considered to be firm commitments are as follows:
Payment due within Due after
----------------------------- ---------
(in millions) Total 1 Year 2-3 Years 4-5 Years 5 Years
- ------------- ------ ------ --------- --------- -------
Long-Term Debt $5,992 $ 548 $1,008 $1,003 $3,433
Short-Term Debt 101 101 -- -- --
COMRPS and Preferred
Stock with Mandatory
Redemption Requirements 147 19 -- -- 128
Operating Leases 13 2 4 4 3
------ ------ ------ ------ ------
Total Contractual Obligations $6,253 $ 670 $1,012 $1,007 $3,564
====== ====== ====== ====== ======
See ITEM 8. Financial Statements and Supplementary Data - PECO, Notes
to Consolidated Financial Statements for additional information about:
o long-term debt see Note 11
o short-term debt see Note 10
o operating leases see Note 18
o COMRPS and Preferred Stock with Mandatory Redemption Requirements see
Notes 15 and 14, respectively.
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PECO's commercial commitments as of December 31, 2001 representing
commitments triggered by future events, including obligations to make payment on
behalf of other parties as well as financing arrangements to secure obligations
of PECO, are as follows:
Expiration within After
---------------------------- -------
(in millions) Total 1 Year 2-3 Years 4-5 Years 5 Years
- ------------- ----- ------ --------- --------- -------
Available Lines of Credit (a) $300 $300 $-- $-- $--
Letters of Credit (non-debt) (b) 11 11 -- -- --
Letters of Credit (Long-Term Debt) (c) 17 -- 17 -- --
Insured Long-Term Debt (d) 154 -- 154 -- --
Guarantees (e) 100 -- -- -- 100
---- ---- ---- --- ----
Total Commercial Commitments $582 $311 $171 $-- $100
==== ==== ==== === ====
(a) Lines of Credit - PECO, along with Exelon, ComEd and Generation, maintain a
$1.5 billion 364-day credit facility to support commercial paper issuances.
PECO has a $300 million sublimit under the credit facility. At December 31,
2001, there are no borrowings against the credit facility.
(b) Letters of Credit (non-debt) - PECO and certain of its subsidiaries
maintain non-debt letters of credit to provide credit support for certain
transactions as requested by third parties.
(c) Letters of Credit (Long-Term Debt) - Direct-pay letters of credit issued in
connection with variable-rate debt in order to provide liquidity in the
event that it is not possible to remarket all of the debt as required
following specific events, including changes in the basis of determining
the interest rate on the debt.
(d) Insured Long-Term Debt - Borrowings that have been credit-enhanced through
the purchase of insurance coverage equal to the amount of principal
outstanding plus interest.
(e) Guarantees - Provide support for lines of credit, performance contracts,
surety bonds and leases as required by third parties.
OFF BALANCE SHEET OBLIGATIONS
PECO is party to an agreement with a financial institution under which
it can sell or finance with limited recourse an undivided interest, adjusted
daily, in up to $225 million of designated accounts receivable until November
2005. At December 31, 2001, PECO had sold a $225 million interest in accounts
receivable, consisting of a $170 million interest in accounts receivable which
PECO accounted for as a sale under SFAS No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities - a Replacement
of FASB Statement No. 125," and a $55 million interest in special-agreement
accounts receivable which was accounted for as a long-term note payable. See
ITEM 8. Financial Statements and Supplementary Data - PECO, Note 14 of Notes to
Consolidated Financial Statements. PECO retains the servicing responsibility for
these receivables. The agreement requires PECO to maintain the $225 million
interest, which, if not met, requires PECO to deposit cash in order to satisfy
such requirements. At December 31, 2001 and 2000, PECO met this requirement and
was not required to make any cash deposits.
OTHER FACTORS
PECO participates in defined benefit pension plans and postretirement
welfare sponsored by Exelon. Essentially all PECO employees are eligible to
participate in these plans. In 2001, PECO's former plans were consolidated into
the Exelon plans. Essentially all PECO employees, hired on or after January 1,
2001 are eligible to participate in newly established Exelon cash balance
pension plans. Employees who were active participants in the former PECO pension
plans on December 31, 2000 and remain employed by PECO on January 1, 2002, will
have the opportunity to continue to participate in the pension plan or to
transfer to the cash balance plan. Participants in the cash balance plan, unlike
participants in the other defined benefit plans, may request a lump-sum cash
payment upon employee termination which may result in increased cash
requirements from pension plan assets. PECO may be required to increase future
funding to the pension plan as a result of these increased cash requirements.
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Due to the performance of the United States debt and equity markets in
2001, the value of assets held in trusts to satisfy the obligations of pension
and postretirement benefit plans has decreased. Also, as a result of the Merger
and corporate restructuring, there was a larger than average number of employees
taking advantage of retirement benefits in 2001. These factors may also result
in additional future funding requirements of the pension and postretirement
benefit plans.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally
accepted accounting principles requires that management apply accounting
policies and make estimates and assumptions that affect results of operations
and the reported amounts of assets and liabilities in the financial statements.
The following areas represent those that management believes are particularly
important to the financial statements and that require the use of estimates and
assumptions to describe matters that are inherently uncertain:
REGULATORY ASSETS AND LIABILITIES
Regulatory assets represent incurred costs that have been deferred
because they are probable of future recovery in customer rates. Regulatory
liabilities represent previous collections from customers to fund costs which
have not yet been incurred.
PECO is currently subject to a rate freeze that limits the opportunity
to recover increased costs and the costs of new investment in facilities through
rates during the rate freeze period. Current rates include the recovery of
PECO's existing regulatory assets. PECO continually assesses whether the
regulatory assets are probable of future recovery by considering factors such as
applicable regulatory environment changes, recent rate orders to other regulated
entities in the same jurisdiction, and the status of any pending or potential
deregulation legislation. If future recovery of costs ceases to be probable the
assets would be required to be recognized in current period earnings.
UNBILLED ENERGY REVENUES
Revenues related to the sale of energy are generally recorded when
service is rendered or energy is delivered to customers. However, the
determination of the energy sales to individual customers is based on the
reading of their meters which are read on a systematic basis throughout the
month. At the end of each month, amounts of energy delivered to customers since
the date of the last meter reading are estimated and the corresponding unbilled
revenue is estimated. This unbilled revenue is estimated each month based on
daily generation volumes, estimated customer usage by class, line losses and
applicable customer rates based on regression analyses reflecting significant
historical trends and experience. Customer accounts receivable as of December
31, 2001 include unbilled energy revenues of $100 million on a base of annual
revenues of $4.0 billion.
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ACCOUNTING FOR DERIVATIVE INSTRUMENTS
PECO utilizes derivatives to manage its exposure to fluctuation in
interest rates related to outstanding variable rate debt instruments and planned
future debt issuances as well as exposure to changes in the fair value of
outstanding debt that is planned for early retirement. Derivative financial
instruments are accounted for under SFAS No. 133. Hedge accounting has been used
for all interest rate derivatives to date based on the probability of the
transaction and the expected highly effective nature of the hedging relationship
between the interest rate swap contract and the interest payment or changes in
fair value of the hedged debt. Dealer quotes are available for all of PECO's
interest rate swap agreement derivatives. Accounting for derivatives continues
to evolve through guidance issued by the DIG of the FASB. To the extent that
changes by the DIG modify current guidance, including the normal purchases and
normal sales determination, the accounting treatment for derivatives may change.
ENVIRONMENTAL COSTS
As of December 31, 2001 PECO had accrued liabilities of $37 million for
environmental investigation and remediation costs. The liabilities are based
upon estimates with respect to the number of sites for which PECO will be
responsible, the scope and cost of work to be performed at each site, the
portion of costs that will be shared with other parties and the timing of the
remediation work. Where timing and amounts of expenditures can be reliably
estimated, amounts are discounted. Where timing and amounts cannot be reliably
estimated, a range is estimated and the low end of the range is recognized on an
undiscounted basis. Estimates can be affected by factors including future
changes in technology, changes in regulations or requirements of local
governmental authorities and actual costs of disposal.
OUTLOOK
GENERAL
PECO believes that it will provide a significant and steady source of
earnings. PECO's primary goals are to deliver reliable service, to improve
customer service and to sustain productive regulatory relationships. Achieving
these goals is expected to maximize the value of PECO's assets.
Under restructuring regulations adopted at the Federal and state
levels, the role of electric utilities in the supply and delivery of energy is
changing. PECO continues to be obligated to provide reliable delivery systems
under cost-based rates. It remains obligated, as a provider of last resort, to
supply generation service during the transition period to a competitive supply
marketplace to customers who do not or cannot choose an alternate supplier.
Retail competition for generation services has resulted in reduced revenues from
regulated rates and the sale of increasing amounts of energy at market-based
rates.
PECO's revenues will be affected by rate reductions and rate freezes
currently in effect. The rate freezes limit PECO's ability to recover increased
expenses and the costs of investments in new transmission and distribution
facilities through rates. As a result, PECO's future results of operations will
be dependent on its ability:
o to deliver electricity and gas to its customers cost-effectively,
o to realize cost savings and synergies from the Merger to offset increased
costs on new investments and inflation while its delivery rates are capped
and,
o to manage its provider of last resort responsibilities.
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PECO's results will be affected by annual increases in amortization of
its stranded cost recovery through 2010. PECO has been authorized to recover
stranded costs of $5.3 billion ($4.9 billion of unamortized costs at December
31, 2001) over a twelve-year period ending December 31, 2010 with a return on
the unamortized balance of 10.75%. In 2001, revenue attributable to stranded
cost recovery was $797 million and is scheduled to increase to $932 million by
2010, the final year of stranded cost recovery. Amortization of PECO's stranded
cost recovery, which is a regulatory asset, is included in depreciation and
amortization. The amortization expense for 2001 was $271 million and will
increase to $879 million by 2010.
All of PECO's retail customers have the right to choose their
electricity suppliers. At December 31, 2001, approximately 28% of PECO's
residential load, 6% of its small commercial and industrial load and 5% of its
large commercial and industrial load were purchasing generation service from an
alternate supplier.
PECO has entered into a long-term agreement with Generation to procure
its power needs and achieve some certainty during the next several years with
respect to these obligations. Because PECO's agreement with Generation allows it
to obtain sufficient power at the rates it is allowed to charge to serve
customers who do not choose alternate generation suppliers revenues and expenses
may vary with customer choice, but income will not be significantly impacted.
Transmission. PECO provides wholesale transmission service under rates
established by FERC. FERC has used its regulation of transmission to encourage
competition for wholesale generation services and the development of regional
structures to facilitate regional wholesale markets. In December 1999, FERC
issued Order 2000 requiring jurisdictional utilities to file a proposal to form
an RTO or, alternatively, to describe efforts to participate in or work toward
participating in an RTO or explain why they were not participating in an RTO.
Order 2000 is generally designed to separate the governance and operation of the
transmission system from generation companies and other market participants.
PECO provides regional transmission service pursuant to a regional
open-access transmission tariff filed by it and the other transmission owners
who are members of PJM. PJM is a power pool that integrates, through central
dispatch, the generation and transmission operations of its member companies
across a 50,000 square mile territory. Under the PJM tariff, transmission
service is provided on a region-wide, open-access basis using the transmission
facilities of the PJM members at rates based on the costs of transmission
service. PJM's Office of Interconnection is the ISO for PJM (PJM ISO) and is
responsible for operation of the PJM control area and administration of the PJM
open-access transmission tariff. PECO and the other transmission owners in PJM
have turned over control of their transmission facilities to the PJM ISO. The
PJM ISO and the transmission owners who are members of PJM, including PECO, have
filed with FERC for approval of PJM as an RTO. FERC has conditionally approved
the PJM RTO.
OTHER FACTORS
Inflation affects PECO through increased operating costs and increased
capital costs for electric plant. As a result of the rate caps imposed under the
legislation in Pennsylvania and price pressures due to competition, PECO may not
be able to pass the costs of inflation through to customers.
PECO participates in defined benefit pension plans and postretirement
welfare sponsored by Exelon. Essentially all PECO employees are eligible to
participate in these plans. In 2001, PECO's former plans were consolidated into
the Exelon plans. PECO's costs of providing pension and postretirement benefits
to its retirees is dependent upon a number of factors, such as
80
the discount rate, rates of return on plan assets, and the assumed rate of
increase in health care costs. Although PECO's pension and postretirement
expense is determined using three-year averaging and is not as vulnerable to a
single year's change in rates, these costs are expected to increase in 2002 and
beyond as the result of the above noted plan changes along with the affects of
the decline in market value of plan assets, changes in appropriate assumed rates
of return on plan assets and discount rates, and increases in health care costs.
For a discussion of PECO's pension and postretirement benefit plans, see Item 8.
Financial Statements and Supplementary Data - PECO - Note 13 of the Notes to
Consolidated Financial Statements.
Environmental. PECO's operations have in the past and may in the future
require substantial capital expenditures in order to comply with environmental
laws. Additionally, under Federal and state environmental laws, PECO is
generally liable for the costs of remediating environmental contamination of
property now or formerly owned by PECO and of property contaminated by hazardous
substances generated by PECO. PECO owns or leases a number of real estate
parcels, including parcels on which its operations or the operations of others
may have resulted in contamination by substances that are considered hazardous
under environmental laws. PECO has identified 28 sites where former MGP
activities have or may have resulted in actual site contamination. PECO is
currently involved in a number of proceedings relating to sites where hazardous
substances have been deposited and may be subject to additional proceedings in
the future.
As of December 31, 2001 and 2000, PECO had accrued $37 million and $54
million, respectively, for environmental investigation and remediation costs,
including $27 million and $30 million, respectively, for MGP investigation and
remediation that currently can be reasonably estimated. In conjunction with the
corporate restructuring in January 2001, a portion of the environmental
investigation and remediation costs were transferred to Generation. PECO expects
to expend $2 million for environmental remediation activities in 2002. PECO
cannot predict whether it will incur other significant liabilities for any
additional investigation and remediation costs at these or additional sites
identified by PECO, environmental agencies or others, or whether such costs will
be recoverable from third parties.
Security Issues and Other Impacts of Terrorist Actions. The events of
September 11, 2001 have affected PECO's operating procedures and costs and are
expected to affect the cost and availability of the insurance coverages that
PECO carries. PECO has initiated security measures to safeguard its employees
and critical operations and is actively participating in industry initiatives to
identify methods to maintain the reliability of its delivery systems. It is
expected that governmental authorities will be working to ensure that emergency
plans are in place and that critical infrastructure vulnerabilities are
addressed. The electric utility industry is proposing security guidelines rather
than government mandated standards to protect critical infrastructures. It is
not known if Federal standards will be issued to the electric or gas industries.
PECO is evaluating enhanced security measures at certain critical locations,
enhanced response and recovery plans and assessing longer term design changes
and redundancy measures. These measures will involve additional expense to
develop and implement.
PECO carries property damage and liability insurance for its properties
and operations. As a result of significant changes in the insurance marketplace,
due in part to the September 11, 2001 terrorist acts, the available coverage and
limits may be less than the amount of insurance obtained in the past, and the
recovery for losses due to terrorists acts may be limited.
PECO is self-insured to the extent that any losses may exceed the
amount of insurance maintained. Damage to PECO's properties could disrupt the
transmission or distribution
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electricity and significantly and adversely affect results of operations. PECO
cannot predict the effects on operations of the availability of property damage
and liability coverage or any disruptions to its delivery facilities.
NEW ACCOUNTING PRONOUNCEMENTS
In 2001, the FASB issued SFAS No. 141, SFAS No. 142, SFAS No. 143 and
SFAS No. 144.
SFAS No. 141 requires that all business combinations be accounted for
under the purchase method of accounting and establishes criteria for the
separate recognition of intangible assets acquired in business combinations.
SFAS No. 141 is effective for business combinations initiated after June 30,
2001.
SFAS No. 142 establishes new accounting and reporting standards for
goodwill and intangible assets. SFAS No. 142 is effective as of January 1, 2002.
Under SFAS No. 142, effective January 1, 2002, goodwill recorded is no longer
subject to amortization. After January 1, 2002, goodwill will be subject to an
assessment for impairment using a two-step fair value based test, the first step
of which must be performed at least annually, or more frequently if events or
circumstances indicate that goodwill might be impaired. The first step compares
the fair value of a reporting unit to its carrying amount, including goodwill.
If the carrying amount of the reporting unit exceeds its fair value, the second
step is performed. The second step compares the carrying amount of the goodwill
to the fair value of the goodwill. If the fair value of goodwill is less than
the carrying amount, an impairment loss would be reported as a reduction to
goodwill and a charge to operating expense, except at the transition date, when
the loss would be reflected as a cumulative effect of a change in accounting
principle. As of December 31, 2001, PECO does not have any Goodwill reflected on
its Consolidated Balance Sheets and does not expect the effect of adopting SFAS
No. 142 to materially affect the results of operations. As a result of the
corporate restructuring in January 2001, all of PECO's goodwill was transferred
to Enterprises.
SFAS No. 143 provides accounting requirements for retirement
obligations associated with tangible long-lived assets. PECO expects to adopt
SFAS No. 143 on January 1, 2003. Retirement obligations associated with
long-lived assets included within the scope of SFAS No. 143 are those for which
there is a legal obligation to settle under existing or enacted law, statute,
written or oral contract or by legal construction under the doctrine of
promissory estoppel. PECO is currently in the process of evaluating the impact
of SFAS No. 143 on its financial statements.
SFAS No. 144 establishes accounting and reporting standards for both
the impairment and disposal of long-lived assets. This statement is effective
for fiscal years beginning after December 15, 2001 and provisions of this
statement are generally applied prospectively. PECO is in the process of
evaluating the impact of SFAS No. 144 on its financial statements, and does not
expect the impact to be material.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
EXELON
The information required by this Item is incorporated herein by
reference to the information appearing under the subheading "Quantitative and
Qualitative Disclosures About
82
Market Risk" under "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in Exhibit 99-2 to Exelon's Current Report on Form
8-K dated February 28, 2002.
COMED
ComEd is exposed to market risks associated with credit, interest
rates and commodity price. The inherent risk in market sensitive instruments and
positions is the potential loss arising from adverse changes in commodity
prices, counterparty credit, and interest rates. Exelon's corporate Risk
Management Committee (RMC) sets forth risk management philosophy and objectives
for Exelon and its subsidiaries through a corporate policy, and establishes
procedures for risk assessment, control and valuation, counterparty credit
approval, and the monitoring and reporting of derivative activity and risk
exposures. The RMC is chaired by Exelon's chief risk officer and includes the
chief financial officer, general counsel, treasurer, vice president of corporate
planning and officers from each of the business units. The RMC reports to the
board of directors on the scope of ComEd's derivative activities.
CREDIT RISK
ComEd is obligated to provide service to all electric customers within
its franchised territories, and, as a result, has a broad customer base. For the
year ended December 31, 2001, ComEd's ten largest customers represented
approximately 3% of its retail electric revenues. ComEd manages credit risk
using credit and collection policies which are regulated by the ICC.
INTEREST RATE RISK
ComEd uses a combination of fixed rate and variable rate debt to reduce
interest rate exposure. Interest rate swaps may be used to adjust exposure when
deemed appropriate based upon market conditions. ComEd also utilizes
forward-starting interest rate swaps and treasury rate locks to lock in interest
rate levels in anticipation of future financing. These strategies are employed
to maintain the lowest cost of capital. As of December 31, 2001, a hypothetical
10% increase in the interest rates associated with variable rate debt would
result in a $1 million decrease in pre-tax earnings for 2002.
ComEd has entered into an interest rate swap to manage interest rate
exposure associated with a $235 million fixed-rate obligation. In December 2001,
ComEd entered into forward-starting interest rate swaps, with an aggregate
notional amount of $250 million in anticipation of the issuance of debt in the
first quarter of 2002. At December 31, 2001, these interest rate swaps had an
aggregate fair market value exposure of $1 million based on the present value
difference between the contract and market rates at December 31, 2001.
The aggregate fair value exposure of the interest rate swaps that would
have resulted from a hypothetical 50 basis point decrease in the spot yield at
December 31, 2001 is estimated to be $7 million. If these derivative instruments
had been terminated at December 31, 2001, this estimated fair value represents
the amount that would be paid by ComEd to the counterparties.
The aggregate fair value exposure of the interest rate swaps that would
have resulted from a hypothetical 50 basis point increase in the spot yield at
December 31, 2001 is estimated to be $4 million. If these derivative instruments
had been terminated at December 31, 2001, this estimated fair value represents
the amount to be paid by the counterparties to ComEd.
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In March 2002, ComEd settled the $250 million of forward-starting
interest rate swaps and paid $6 million to the counterparty. ComEd also entered
into forward-starting interest rate swaps with an aggregate notional amount of
$175 million in anticipation of the issuance of debt in the second half of 2002.
COMMODITY PRICE RISK
As part of the corporate restructuring, ComEd entered into a PPA with
Generation to meet its retail customer obligations at fixed prices. ComEd's
principal exposure to commodity price risk is in relation to revenues collected
from customers who elect the power purchase option at market-based prices, and
CTC revenues which are calculated to provide the customer with a credit for the
market price for electricity. ComEd has performed a sensitivity analysis to
determine the net impact of a 10% decrease in the average around-the-clock
market price of electricity. Because the decrease in revenues from customers
electing the power purchase option is significantly offset by increased CTC
revenues, ComEd does not believe that its exposure to such a market price
decrease would be material.
PECO
PECO is exposed to market risks associated with credit and interest
rates. The inherent risk in market sensitive instruments and positions is the
potential loss arising from adverse changes in counterparty credit and interest
rates. Exelon's corporate RMC sets forth risk management philosophy and
objectives through a corporate policy, and establishes procedures for risk
assessment, control and valuation, counterparty credit approval, and the
monitoring and reporting of derivative activity and risk exposures. As a result
of the PPA with Generation, PECO does not believe it is subject to material
commodity price risk.
CREDIT RISK
PECO is obligated to provide service to all electric customers within
its franchised territory. As a result, PECO has a broad customer base. For the
year ended December 31, 2001, PECO's ten largest customers represented
approximately 10% of its retail electric revenues. Credit risk for PECO is
managed by its credit and collection policies, which is consistent with state
regulatory requirements.
Under the Competition Act, licensed entities, including alternate
electric generating suppliers, may act as agents to provide a single bill and
provide associated billing and collection services to retail customers located
in PECO's retail electric service territory. Currently, there are no third
parties providing billing of PECO's charges to customers or advanced metering.
However, if this occurs, PECO would be subject to credit risk related to the
ability of the third parties to collect such receivables from the customers.
84
INTEREST RATE RISK
PECO uses a combination of fixed rate and variable rate debt to reduce
interest rate exposure. Interest rate swaps may be used to adjust exposure when
deemed appropriate based upon market conditions. PECO also utilizes
forward-starting interest rate swaps and treasury rate locks to lock in interest
rate levels in anticipation of future financing. These strategies are employed
to maintain the lowest cost of capital. As of December 31, 2001, a hypothetical
10% increase in the interest rates associated with variable rate debt would not
have a material impact on pre-tax earnings for 2002.
PECO has entered into interest rate swaps to manage interest rate
exposure associated with the floating rate series of transition bonds issued to
securitize PECO's stranded cost recovery. At December 31, 2001, these interest
rate swaps had an aggregate fair market value exposure of $19 million based on
the present value difference between the contract and market rates at December
31, 2001.
The aggregate fair value exposure of the interest rate swaps that would
have resulted from a hypothetical 50 basis point decrease in the spot yield at
December 31, 2001 is estimated to be $23 million. If these derivative
instruments had been terminated at December 31, 2001, this estimated fair value
represents the amount that would be paid by PECO to the counterparties.
The aggregate fair value exposure of the interest rate swaps that would
have resulted from a hypothetical 50 basis point increase in the spot yield at
December 31, 2001 is estimated to be $15 million. If these derivative
instruments had been terminated at December 31, 2001, this estimated fair value
represents the amount to be paid by PECO to the counterparties.
In 1999, PECO entered into interest rate swaps relating to the Class
A-3 and Class A-5 Series 1999-A Transition Bonds in the aggregate notional
amount of $1.1 billion with an average interest rate of 6.65%. PECO also entered
into forward-starting interest rate swaps relating to these two classes of
floating rate transition bonds in the aggregate notional amount of $1.1 billion
with an average interest rate of 6.01%. In connection with the refinancing of a
portion of the two floating rate series of transition bonds in the first quarter
of 2001, PECO settled $318 million of a forward-starting interest rate swap,
resulting in a $6 million gain which is reflected in other income and
deductions. Also, in connection with the refinancing, PECO settled a portion of
the interest rate swaps and the remaining portion of the forward-starting
interest rate swaps resulting in gains of $25 million, which were deferred and
are being amortized over the expected remaining lives of the related debt.
In February 2000, PECO entered into forward-starting interest rate
swaps for a notional amount of $1 billion in anticipation of the issuance of $1
billion of Transition Bonds in the second quarter of 2000. In May 2000, PECO
settled these forward-starting interest rate swaps and paid the counterparties
$13 million which was deferred and is being amortized over the life of the
Transition Bonds as an increase in interest expense.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
EXELON
The information required by this Item is incorporated herein by reference
to the Consolidated Statements of Income for the years 2001, 2000 and 1999;
Consolidated Statements of Cash Flows for the years 2001, 2000 and 1999;
Consolidated Balance Sheets as of December 31, 2001 and 2000; Consolidated
Statements of Changes in Shareholders' Equity for the years 2001, 2000 and 1999
and Consolidated Statements of Comprehensive Income for the years 2001, 2000 and
1999; and Notes to Consolidated Financial Statements appearing in Exhibit 99-4
to Exelon's Current Report on Form 8-K dated February 28, 2002.
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ComEd
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
Commonwealth Edison Company:
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(2)(i) present fairly, in all material respects, the
financial position of Commonwealth Edison Company and Subsidiary Companies
(ComEd) at December 31, 2001 and 2000, and the results of their operations and
their cash flows for the year ended December 31, 2001 and for the periods from
October 20, 2000 to December 31, 2000 and from January 1, 2000 to October 19,
2000, in conformity with accounting principles generally accepted in the United
States of America. In addition, in our opinion, the financial statement schedule
listed in the index appearing under Item 14(a)(2)(ii) for the years ended
December 31, 2001 and 2000, presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and the financial
statement schedule are the responsibility of ComEd's management; our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
As discussed in Note 3 to the consolidated financial statements, effective
October 20, 2000, Exelon Corporation acquired Unicom Corporation, the parent
company of ComEd at that date, in a business combination accounted for as a
purchase. As a result of the acquisition, the consolidated financial information
for the period after the acquisition is presented on a different cost basis than
that for the periods before the acquisition and therefore, is not comparable. As
discussed in Note 2, as part of a corporate restructuring undertaken on January
1, 2001 by Exelon Corporation, the parent company of ComEd, all of ComEd's
generation-related and certain other operations, assets and liabilities of ComEd
were transferred to affiliated companies of ComEd.
As discussed in Note 1 to the consolidated financial statements, ComEd changed
its method of accounting for derivative instruments and hedging activities
effective January 1, 2001.
PricewaterhouseCoopers LLP
Chicago, Illinois
January 29, 2002, except for Note 19 for which the date is March 21, 2002.
87
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Commonwealth Edison Company:
We have audited the consolidated statements of income, cash flows,
comprehensive income and changes in shareholders' equity of Commonwealth Edison
Company (an Illinois corporation) and Subsidiary Companies for the year ended
December 31, 1999. These financial statements and the schedule referred to below
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedule based on our
audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of
Commonwealth Edison Company and Subsidiary Companies for the year ended December
31, 1999, in conformity with accounting principles generally accepted in the
United States.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed under Item
14(a)(2)(ii) for the year ended December 31, 1999, is presented for the purposes
of complying with the Securities and Exchange Commission's rules and is not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
Arthur Andersen LLP
Chicago, Illinois
January 31, 2000
88
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
For the For the period For the
Year Ended Oct. 20 - Jan. 1- Year Ended
Dec. 31, Dec. 31, Oct. 19, Dec. 31,
(in millions) 2001 2000 2000 1999
- ------------- ---- ---- ---- ----
OPERATING REVENUES
Operating Revenues $ 6,125 $ 1,297 | $ 5,625 $ 6,793
Operating Revenues from Affiliates 81 13 | 77 --
------- ------- | ------- -------
Total Operating Revenues 6,206 1,310 | 5,702 6,793
------- ------- | ------- -------
OPERATING EXPENSES |
|
Fuel and Purchased Power 14 322 | 1,655 1,549
Purchased Power from Affiliate 2,656 -- | -- --
Operating and Maintenance 833 423 | 1,653 2,352
Operating and Maintenance from Affiliates 148 -- | -- --
Merger-Related Costs -- 14 | 53 --
Depreciation and Amortization 665 130 | 868 836
Taxes Other Than Income 296 83 | 425 507
------- ------- | ------- -------
Total Operating Expenses 4,612 972 | 4,654 5,244
------- ------- | ------- -------
OPERATING INCOME 1,594 338 | 1,048 1,549
------- ------- | ------- -------
Other Income and Deductions |
|
Interest Expense (555) (127)| (469) (602)
Interest Expense from Affiliates (10) -- | -- --
Distributions on Company-Obligated |
Mandatorily Redeemable Preferred Securities of |
Subsidiary Trusts Holding Solely the Company's |
Subordinated Debt Securities (30) (6)| (24) (30)
Interest Income from Affiliates 79 29 | 150 8
Other, Net 35 2 | 127 52
------- ------- | ------- -------
Total Other Income and Deductions (481) (102)| (216) (572)
------- ------- | ------- -------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEMS 1,113 236 | 832 977
INCOME TAXES 506 103 | 229 326
------- ------- | ------- -------
INCOME BEFORE EXTRAORDINARY ITEMS 607 133 | 603 651
EXTRAORDINARY ITEMS (NET OF INCOME TAXES OF $2 AND $18 |
FOR THE PERIODS ENDING OCT. 19, 2000 AND DEC. 31, 1999, |
RESPECTIVELY) -- -- | (4) (28)
------- ------- | ------- -------
NET INCOME 607 133 | 599 623
PREFERRED AND PREFERENCE STOCK DIVIDENDS -- -- | 3 24
------- ------- | ------- -------
NET INCOME ON COMMON STOCK $ 607 $ 133 | $ 596 $ 599
======= ======= | ======= =======
See Notes to Consolidated Financial Statements
89
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the For the period For the
Year Ended Oct. 20 - Jan. 1- Year Ended
Dec. 31, Dec. 31 Oct. 19 Dec. 31,
(in millions) 2001 2000 2000 1999
- ------------- ---- ---- | ---- ----
|
CASH FLOWS FROM OPERATING ACTIVITIES |
|
Net Income $ 607 $ 133 | $ 599 $ 623
Adjustments to reconcile Net Income to Net |
Cash Flows provided by Operating Activities: |
Depreciation and Amortization 665 174 | 1,012 902
Extraordinary Items (net of income taxes) -- -- | 4 28
(Gain)/loss on Forward Share Arrangements -- -- | (113) 44
Reversal of Provision for Revenue Refunds (15) -- | -- --
Provision for Uncollectible Accounts 42 16 | 30 87
Deferred Income Taxes 14 72 | 861 (1,456)
Merger-Related Costs -- 14 | 53 --
Early Retirement and Separation Program -- -- | 28 (62)
Midwest Independent System Operator Exit Fees (36) -- | -- --
Contribution to Environmental Trust -- -- | -- (250)
Recovery of Coal Reserve Regulatory Assets -- -- | -- 198
Other Operating Activities (2) (69) | (163) 1
Changes in Working Capital: |
Accounts Receivable 76 (37) | 96 (175)
Inventories 16 97 | 17 (6)
Accounts Payable, Accrued Expenses |
& Current Liabilities 149 65 | (1,334) 1,331
Change in Receivables and Payables to Affiliates, net (166) -- | (10) (6)
Other Current Assets 2 59 | (6) (16)
------- ------- | ------- -------
NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES 1,352 524 | 1,074 1,243
------- ------- | ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES |
|
Investment in Plant (839) (196) | (1,210) (1,337)
Plant Removals, net (30) (11) | (14) (75)
Sales of Generating Plants -- -- | -- 4,886
Proceeds from Nuclear Decommissioning Trust Funds -- 288 | 1,251 1,593
Investment in Nuclear Decommissioning Trust Funds -- (377) | (1,290) (1,683)
Change in Receivables from Affiliates 417 (441) | 288 (2,209)
Other Investments -- (63) | 139 (37)
Other Investing Activities 11 -- | 9 8
------- ------- | ------- -------
NET CASH FLOWS (USED IN) PROVIDED BY INVESTING ACTIVITIES (441) (800) | (827) 1,146
------- ------- | ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES |
|
Issuance of Long-Term Debt, net of issuance costs -- -- | 450 --
Common Stock Repurchases -- -- | (153) (115)
Retirement of Long-Term Debt (542) (84) | (755) (1,558)
Change in Short-Term Debt -- -- | (5) (272)
Redemption of Preferred Securities of Subsidiaries -- -- | (71) (534)
Change in Restricted Cash 19 50 | 175 2,778
Dividends on Capital Stock (483) (95) | (260) (392)
Common Stock Forward Repurchases -- -- | (67) (813)
Nuclear Fuel Lease Principal Payments -- -- | (270) (255)
Other Financing Activities (23) -- | -- --
------- ------- | ------- -------
NET CASH FLOW USED IN FINANCING ACTIVITIES (1,029) (129) | (956) (1,161)
------- ------- | ------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (118) (405) | (709) 1,228
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 141 546 | 1,255 27
------- ------- | ------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 23 $ 141 | $ 546 $ 1,255
======= ======= | ======= =======
See Notes to Consolidated Financial Statements
90
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
at December 31,
---------------
(in millions) 2001 2000
- ------------- ---- ----
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 23 $ 141
Restricted Cash 41 60
Accounts Receivable, net
Customer 745 970
Other 87 234
Inventories, at average cost 56 186
Deferred Income Taxes 52 89
Receivables from Affiliates 95 468
Other 15 24
-------- --------
Total Current Assets 1,114 2,172
-------- --------
PROPERTY, PLANT AND EQUIPMENT, NET 7,351 7,657
DEFERRED DEBITS AND OTHER ASSETS
Regulatory Assets 667 1,110
Nuclear Decommissioning Trust Funds -- 2,669
Investments 64 152
Goodwill, net 4,902 4,766
Receivables from Affiliates 1,314 1,316
Other 304 356
-------- --------
Total Deferred Debits and Other Assets 7,251 10,369
-------- --------
TOTAL ASSETS $ 15,716 $ 20,198
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Long-Term Debt Due Within One Year $ 849 $ 348
Accounts Payable 144 597
Accrued Expenses 63 148
Accrued Interest 165 149
Accrued Taxes 146 79
Payables to Affiliates 307 --
Customer Deposits 90 73
Other 122 329
-------- --------
Total Current Liabilities 1,886 1,723
-------- --------
LONG-TERM DEBT 5,850 6,882
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred Income Taxes 1,671 1,837
Unamortized Investment Tax Credits 55 59
Nuclear Decommissioning Liability for Retired Plants -- 1,301
Pension Obligations 151 285
Non-Pension Postretirement Benefits Obligation 146 315
Spent Fuel Obligation -- 810
Payables to Affiliates 297 --
Other 248 475
-------- --------
Total Deferred Credits and Other Liabilities 2,568 5,082
-------- --------
COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF
SUBSIDIARY TRUSTS HOLDING THE COMPANY'S SUBORDINATED DEBT SECURITIES 329 328
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common Stock 2,048 2,678
Preference Stock 7 7
Other Paid in Capital 5,057 5,388
Receivable from Parent (937) --
Retained Earnings 257 133
Treasury Stock, at cost (1,344) (2,023)
Accumulated Other Comprehensive Income (5) --
-------- --------
Total Shareholders' Equity 5,083 6,183
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 15,716 $ 20,198
======== ========
See Notes to Consolidated Financial Statements
91
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Accumulated
Preferred and Other Receivable Other Total
Common Preference Paid-in from Retained Comprehensive Treasury Shareholders'
(in millions) Stock Stock Capital Parent Earnings Income Stock Equity
- ------------- ----- ----- ------- ------ -------- ------ ----- ------
BALANCE, DECEMBER 31, 1998 $ 2,678 $ 524 $ 2,208 $ -- $ 177 $ -- $ (7) $ 5,580
Net Income -- -- -- -- 623 -- -- 623
Preferred and Preference Stock
Redemptions -- (515) -- -- -- -- -- (515)
Capital Stock and Warrant Expense -- -- 3 -- (16) -- -- (13)
Common Stock Dividends -- -- -- -- (342) -- -- (342)
Preferred and Preference Stock
Dividends -- -- -- -- (9) -- -- (9)
Common Stock Repurchases -- -- -- -- -- -- (20) (20)
Other Comprehensive Income,
net of income taxes of $5 -- -- -- -- -- 8 -- 8
------- ------- ------- ------- -------- ---- ------- -------
BALANCE, DECEMBER 31, 1999 $ 2,678 $ 9 $ 2,211 $ -- $ 433 $ 8 $ (27) $ 5,312
Net Income -- -- -- -- 599 -- -- 599
Preferred and Preference Stock
Redemptions -- (2) -- -- -- -- -- (2)
Capital Stock Expense -- -- -- -- (1) -- -- (1)
Common Stock Dividends -- -- -- -- (238) -- -- (238)
Preferred and Preference Stock
Dividends -- -- -- -- (1) -- -- (1)
Common Stock Repurchases -- -- -- -- -- -- (153) (153)
Stock Forward Repurchase Contract -- -- -- -- -- -- (993) (993)
Other Comprehensive Income,
net of income taxes of $0 -- -- -- -- -- (2) -- (2)
- -----------------------------------------------------------------------------------------------------------------------
BALANCE, OCTOBER 19, 2000 $ 2,678 $ 7 $ 2,211 $ -- $ 792 $ 6 $(1,173) 4,521
Net Income -- -- -- -- 133 -- -- 133
Merger Fair Value Adjustments -- -- 3,177 -- (792) (6) -- 2,379
Common Stock Repurchases -- -- -- -- -- -- (850) (850)
------- ------- ------- ------- -------- ---- ------- -------
BALANCE, DECEMBER 31, 2000 $ 2,678 $ 7 $ 5,388 $ -- $ 133 $ -- $(2,023) $ 6,183
Net Income -- -- -- -- 607 -- -- 607
Capital Contribution from Parent -- -- 1,062 (937) -- -- -- 125
Retirement of Treasury Shares (630) -- (1,393) -- -- -- 2,023 --
Merger Fair Value Adjustments -- -- 24 -- -- -- -- 24
Corporate Restructuring -- -- (24) -- -- -- (1,344) (1,368)
Common Stock Dividends -- -- -- -- (483) -- -- (483)
Other Comprehensive Income,
net of income taxes of $1 -- -- -- -- -- (5) -- (5)
------- ------- ------- ------- -------- ---- ------- -------
BALANCE, DECEMBER 31, 2001 $ 2,048 $ 7 $ 5,057 $ (937) $ 257 $ (5) $(1,344) $ 5,083
======= ======= ======= ======= ======= ==== ======= =======
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Year Ended For the Period For the Year Ended
-------------- ------------------
December 31, Oct. 20-Dec. 31, | Jan.1 -Oct. 19 December 31,
(in millions) 2001 2000 | 2000 1999
- ------------- ---- ---- | ---- ----
|
Net Income $ 607 $ 133 | $ 599 $ 623
Other Comprehensive Income |
Cash Flow Hedge Fair Value Adjustment, |
net of income taxes of $0 (1) -- | -- --
Foreign Currency Translation Adjustment, |
net of income taxes of $0 (1) -- | -- --
Unrealized Gain (Loss) on Marketable Securities, |
net of income taxes of $1, $0 and $5, respectively (3) -- | (2) 8
Merger Fair Value Adjustment -- (6) | -- --
----- ----- | ----- -----
Total Other Comprehensive Income (5) (6) | (2) 8
----- ----- | ----- -----
Total Comprehensive Income $ 602 $ 127 | $ 597 $ 631
===== ===== | ===== =====
See Notes to Consolidated Financial Statements
92
Commonwealth Edison Company and Subsidiary Companies
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, unless otherwise noted)
1. Significant Accounting Policies
DESCRIPTION OF BUSINESS As a result of the corporate restructuring, effective
January 1, 2001 (see Note 2 - Corporate Restructuring), Commonwealth Edison
Company's (ComEd's) generation and other competitive businesses were separated
from its regulated energy delivery business. As a result, the operations of
ComEd consist of its retail electricity distribution and transmission business
to 3.6 million retail customers. ComEd's retail electric service territories are
located principally in northern Illinois including metropolitan Chicago,
spanning an area of approximately 11,300 square miles.
BASIS OF PRESENTATION The consolidated financial statements of ComEd include the
accounts of ComEd, Commonwealth Edison Company of Indiana, Inc. , Edison
Development Canada Inc. , ComEd Financing I and ComEd Financing II , ComEd
Funding LLC (ComEd Funding), and ComEd Transitional Funding Trust (ComEd Funding
Trust). All significant intercompany transactions have been eliminated. Although
the accounts of ComEd Funding and ComEd Funding Trust, which are Special Purpose
Entities (SPEs), are included in the consolidated financial statements, as
required by generally accepted accounting principles (GAAP), ComEd Funding and
ComEd Funding Trust are separate legal entities from ComEd. The assets of the
SPEs are not available to creditors of ComEd and the transitional property held
by the SPEs are not assets of ComEd.
Accounting policies for regulated operations are in accordance with
those prescribed by the regulatory authorities having jurisdiction, principally
the Illinois Commerce Commission (ICC), the Federal Energy Regulatory Commission
(FERC) and the Securities and Exchange Commission (SEC) under the Public Utility
Holding Company Act of 1935 (PUHCA).
ComEd, a regulated electric utility, is a principal subsidiary of
Exelon Corporation (Exelon), which owns 99.9% of ComEd common stock. ComEd was
the principal subsidiary of Unicom Corporation (Unicom) prior to the merger with
Exelon. See Note 3 - Merger. The merger was accounted for using the purchase
method of accounting in accordance with GAAP. The effects of the purchase method
are reflected on the financial statements of ComEd as of the merger date.
Accordingly, the financial statements presented for the period after the merger
reflect a new basis of accounting. ComEd's financial statements for 2000,
separated by a bold black line, are presented for periods prior to and
subsequent to the merger.
ACCOUNTING FOR THE EFFECTS OF REGULATION ComEd accounts for its regulated
electric operations in accordance with Statement of Financial Accounting
Standards (SFAS) No. 71, "Accounting for the Effects of Certain Types of
Regulation," requiring ComEd to record in the financial statement the effects of
the rate regulation to which these operations are currently subject. Use of SFAS
No. 71 is applicable to the utility operations of ComEd that meet the following
criteria: (1) third-party regulation of rates; (2) cost-based rates; and (3) a
reasonable assumption that all costs will be recoverable from customers through
rates. ComEd believes that it is probable that regulatory assets associated with
these operations will be recovered. If a separable portion of ComEd's business
no longer meets the provisions of SFAS No. 71, ComEd is required to eliminate
the financial statement effects of regulation for that portion.
93
USE OF ESTIMATES The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates. Significant estimates have been made in the accounting for
unbilled revenue, derivatives, environmental costs, retirement benefit costs and
prior to the corporate restructuring nuclear decommissioning liabilities.
REVENUES Operating revenues are generally recorded as service is rendered or
energy is delivered to customers. At the end of each month, ComEd accrues an
estimate for the unbilled amount of energy delivered or services provided to its
customers.
NUCLEAR FUEL Prior to the corporate restructuring in which ComEd's nuclear
generating stations were transferred to Exelon Generation Company, LLC
(Generation) (see Note 2 - Corporate Restructuring), the cost of nuclear fuel
was capitalized and charged to fuel expense using the unit of production method.
Estimated costs of nuclear fuel storage and disposal were charged to expense as
the related fuel was consumed.
DEPRECIATION, AMORTIZATION AND DECOMMISSIONING Depreciation is provided over the
estimated service lives of property, plant, and equipment on a straight line
basis. Annual depreciation provisions for financial reporting purposes,
expressed as a percentage of average service life for each asset category are
presented below:
Asset Category 2001 2000 | 1999
- -------------- ---- ---- | ----
|
Electric -- Transmission and Distribution 5.20% 5.83% | 3.24%
Electric -- Generation -- 4.83% | 2.20%
Other Property and Equipment 5.95% 7.31% | 5.71%
---- ---- | ----
Amortization of regulatory assets is provided over the recovery period specified
in the related legislation or regulatory agreement. See Note 5 - Regulatory
Issues - regarding the regulatory accounting treatment for the nuclear
generating stations transferred to Generation.
Goodwill associated with the merger was amortized on a straight line basis
over 40 years in 2001 and 2000. Accumulated amortization of goodwill was $149
and $23 million at December 31, 2001 and 2000, respectively. Effective January
1, 2002, under SFAS No. 142 "Goodwill and Other Intangible Assets"(SFAS 142),
goodwill recorded by ComEd is no longer subject to amortization. See the New
Accounting Pronouncement section of this note.
ComEd's estimate of the costs for decommissioning nuclear generating
stations transferred to Generation is currently included in regulated rates.
Prior to the corporate restructuring the amounts recovered from customers were
deposited in trust accounts and invested for funding of future costs for current
and retired plants. ComEd accounted for the current period cost of
decommissioning by recording a charge to depreciation expense and a
corresponding liability in accumulated depreciation for its operating nuclear
units and a reduction to regulatory assets for its retired units. Subsequent to
the corporate restructuring, amounts recovered from customers are remitted to
Generation.
CAPITALIZED INTEREST ComEd uses SFAS No. 34, "Capitalization of Interest Costs",
to calculate the costs during construction of debt funds used to finance its
non-regulated construction projects. ComEd recorded capitalized interest of $0
million, $5 million and $22 million in 2001, 2000 and 1999, respectively.
94
Allowance for Funds Used During Construction (AFUDC) is the cost, during
the period of construction, of debt and equity funds used to finance
construction projects for regulated operations. AFUDC of $17 million, $19
million and $22 million in 2001, 2000 and 1999, respectively, was recorded as a
charge to Construction Work in Progress and as a non-cash credit to AFUDC which
is included in Other Income and Deductions. The rates used for capitalizing
AFUDC are computed under a method prescribed by regulatory authorities.
INCOME TAXES Deferred Federal and state income taxes are provided on all
significant temporary differences between book bases and tax bases of assets and
liabilities, transactions that reflect taxable income in a year different from
book income and tax carryforwards. Investment tax credits previously used for
income tax purposes have been deferred on ComEd's Consolidated Balance Sheets
and are recognized in book income over the life of the related property. ComEd
files a consolidated Federal and state income tax returns with Exelon, and was
previously included in Unicom's consolidated income tax returns. Current and
deferred income taxes of the consolidated group are allocated to ComEd as if
ComEd filed separate income tax returns.
GAINS AND LOSSES ON REACQUIRED DEBT Recoverable gains and losses on reacquired
debt related to regulated operations are deferred and amortized to interest
expense over the period consistent with rate recovery for ratemaking purposes.
In 2000 and 1999, prior to the corporate restructuring, gains and losses on
reacquired debt were recognized in ComEd's Consolidated Statements of Income as
incurred.
COMPREHENSIVE INCOME Comprehensive income includes all changes in equity during
a period except those resulting from investments by and distributions to
shareholders.
CASH AND CASH EQUIVALENTS ComEd considers all temporary cash investments
purchased with an original maturity of three months or less to be cash
equivalents.
RESTRICTED CASH Restricted cash reflects unused cash proceeds from the issuance
of the transitional trust notes and escrowed cash to be applied to the principal
and interest payment on the transitional trust notes.
MARKETABLE SECURITIES Marketable securities are classified as available-for-sale
securities and are reported at fair value, with the unrealized gains and losses,
net of tax, reported in other comprehensive income. Prior to the corporate
restructuring (see Note 2 - Corporate Restructuring), unrealized gains and
losses on marketable securities held in the nuclear decommissioning trust funds
were reported in accumulated depreciation for operating units and as a reduction
of regulatory assets for retired units. At December 31, 2001 and 2000, ComEd had
no held-to-maturity or trading securities.
PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is recorded at cost.
ComEd evaluates the carrying value of property, plant and equipment and other
long-term assets based upon current and anticipated undiscounted cash flows, and
recognizes an impairment when it is probable that such estimated cash flows will
be less than the carrying value of the asset. Measurement of the amount of
impairment, if any, is based upon the difference between carrying value and fair
value. The cost of maintenance, repairs and minor replacements of property are
charged to maintenance expense as incurred.
Upon retirement, the cost of regulated property plus removal costs less
salvage, are charged to accumulated depreciation in accordance with the
provisions of SFAS No. 71. For unregulated property, the cost and accumulated
depreciation of property, plant and equipment
95
retired or otherwise disposed of are removed from the related accounts and
included in the determination of the gain or loss on disposition.
CAPITALIZED SOFTWARE COSTS Costs incurred during the application development
stage of software projects which are developed or obtained for internal use are
capitalized. At December 31, 2001 and 2000, net capitalized software costs
totaled $104 million and $150 million, respectively, reflecting $17 million and
$4 million in accumulated amortization, respectively. Such capitalized amounts
are amortized ratably over the expected lives of the projects when they become
operational, not to exceed 10 years. Certain capitalized software is being
amortized over 15 years pursuant to regulatory approval.
DERIVATIVE FINANCIAL INSTRUMENTS ComEd accounts for derivative financial
instruments pursuant to SFAS No. 133, "Accounting for Derivatives and Hedging
Activities" (SFAS 133). Under the provisions of SFAS 133, all derivatives are
recognized on the balance sheet at their fair value unless they qualify for a
normal purchases and normal sales exception. Changes in the fair value of the
derivative financial instrument are recognized in earnings unless specific hedge
accounting criteria are met. A derivative financial instrument can be designated
as a hedge of the fair value of a recognized asset or liability or of an
unrecognized firm commitment (fair value hedge), or a hedge of a forecasted
transaction or the variability of cash flows to be received or paid related to a
recognized asset or liability (cash flow hedge). Changes in the fair value of a
derivative that is highly effective as, and is designated and qualifies as a
fair value hedge, along with the gain or loss on the hedged asset or liability
that is attributable to the hedged risk, are recorded in earnings. Changes in
the fair value of a derivative that is highly effective as, and is designated as
and qualifies as a cash flow hedge are recorded in other comprehensive income,
until earnings are affected by the variability of cash flows being hedged.
In connection with Exelon's Risk Management Policy, ComEd enters into
derivatives to effectively convert fixed rate debt to floating rate debt, manage
its exposure to fluctuations in interest rates related to planned future debt
issuances prior to their actual issuance, as well as exposure to changes in the
fair value of outstanding debt which is planned for early retirement.
Prior to the adoption of SFAS No. 133, ComEd applied hedge accounting only
if the derivative reduced the risk of the underlying hedged item and was
designated at the inception of the hedge, with respect to the hedged item. ComEd
recognized any gains or losses on these derivatives when the underlying physical
transaction affected earnings.
NEW ACCOUNTING PRONOUNCEMENTS In 2001, the FASB issued SFAS No. 141, "Business
Combinations" (SFAS No. 141), SFAS No. 142, No. 143, "Asset Retirement
Obligations" (SFAS No. 143), and SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" (SFAS No. 144).
SFAS No. 141 requires that all business combinations be accounted for under
the purchase method of accounting and establishes criteria for the separate
recognition of intangible assets acquired in business combinations. SFAS No. 141
is effective for business combinations initiated after June 30, 2001.
SFAS No. 142 establishes new accounting and reporting standards for
goodwill and intangible assets. ComEd adopted SFAS No. 142 as of January 1,
2002. Under SFAS No. 142, effective January 1, 2002, goodwill recorded by ComEd
is no longer subject to amortization. After January 1, 2002, goodwill will be
subject to an assessment for impairment using a two-step fair value based test,
the first step of which must be performed at least annually, or more frequently
if events or circumstances indicate that goodwill might be impaired. The first
step compares the fair value of a reporting unit to its carrying amount,
including goodwill. If the carrying amount of the reporting unit exceeds its
fair value, the second step is performed. The second step compares the carrying
amount of the goodwill to the fair value of the goodwill. If the
96
fair value of goodwill is less than the carrying amount, an impairment loss
would be reported as a reduction to goodwill and a charge to operating expense,
except at the transition date, when the loss would be reflected as a cumulative
effect of a change in accounting principle. As of December 31, 2001, ComEd's
Consolidated Balance Sheets reflected approximately $4.9 billion in Goodwill,
net of accumulated amortization. Annual amortization of goodwill of $126 million
was discontinued upon adoption of SFAS No. 142. In the first quarter of 2002,
ComEd has completed the first step of the transitional impairment analysis,
which indicated that its goodwill is not impaired.
SFAS No. 143 provides accounting requirements for retirement obligations
associated with tangible long-lived assets. Retirement obligations associated
with long-lived assets included within the scope of SFAS No. 143 are those for
which there is a legal obligation to settle under existing or enacted law,
statute, written or oral contract or by legal construction under the doctrine of
promissory estoppel. This statement is effective for fiscal years beginning
after June 15, 2002 with initial application as of the beginning of the fiscal
year. ComEd is in the process of evaluating the impact of SFAS No. 143 on its
financial statements.
SFAS No. 144 establishes accounting and reporting standards for both the
impairment and disposal of long-lived assets. This statement is effective for
fiscal years beginning after December 15, 2001 and provisions of this statement
are generally applied prospectively. ComEd is in the process of evaluating the
impact of SFAS No. 144 on its financial statements and does not expect the
impact to be material.
RECLASSIFICATIONS Certain prior year amounts have been reclassified for
comparative purposes. These reclassifications had no effect on net income or
shareholders' equity.
2. Corporate Restructuring
During January 2001, Exelon undertook a corporate restructuring to separate its
generation and other competitive businesses from its regulated energy delivery
businesses at ComEd and PECO. As part of the restructuring, the
generation-related operations and assets and liabilities of ComEd were
transferred to Generation. Additionally, certain operations and assets and
liabilities of ComEd were transferred to Exelon Business Services Company (BSC).
As a result, effective January 1, 2001, the operations of ComEd consist of its
retail electricity distribution and transmission business in northern Illinois.
The corporate restructuring had the following effect on the Condensed
Consolidated Balance Sheets of ComEd:
Decrease in Assets:
Current Assets $ (397)
Property, Plant and Equipment, net (781)
Investments (85)
Other Noncurrent Assets (2,629)
Decrease in Liabilities:
Current Liabilities 799
Long-Term Debt --
Deferred Income Taxes (24)
Other Noncurrent Liabilities 2,212
-------
Net Assets Transferred $ (905)
=======
97
Consideration, based on the net book value of the net assets transferred, was as
follows:
Treasury Stock Received $ 1,344
Other Paid in Capital 24
Notes Payable - Affiliates (463)
-------
$ 905
=======
In connection with the restructuring, ComEd assigned its respective rights and
obligations under various power purchase and fuel supply agreements to
Generation. Additionally, ComEd entered into a power purchase agreement (PPA)
with Generation.
Under the PPA between ComEd and Generation, Generation has agreed to supply
all of ComEd's load requirements through 2004. Prices for this energy vary
depending upon the time of day and month of delivery. During 2005 and 2006,
ComEd's PPA is a partial requirements agreement under which ComEd will purchase
all of its required energy and capacity from Generation, up to the available
capacity of the nuclear generating plants formerly owned by ComEd and
transferred to Generation. Under the terms of the PPA, Generation is responsible
for obtaining any required transmission service. The PPA also specifies that
prior to 2005, ComEd and Generation will jointly determine and agree on a
market-based price for energy delivered under the PPA for 2005 and 2006. In the
event that the parties cannot agree to market-based prices for 2005 and 2006
prior to July 1, 2004, ComEd has the option of terminating the PPA effective
December 31, 2004. ComEd will obtain any additional supply required from market
sources in 2005 and 2006, and subsequent to 2006, will obtain all of its supply
from market sources, which could include Generation.
The obligation for decommissioning ComEd's nuclear facilities and the
related trust fund assets were transferred to Generation concurrently with the
transfer of the generating plants and the related Nuclear Regulatory Commission
(NRC) operating licenses as of January 1, 2001. ComEd had historically accounted
for the current period's cost of decommissioning by recording a charge to
depreciation expense and a corresponding liability in accumulated depreciation
for its operating units and a reduction to regulatory assets for retired units
(in current year dollars) on a straight-line basis over the NRC operating
license life of the plants. As of December 31, 2000, ComEd's cumulative
liability of $2.1 billion was recorded as a component of accumulated
depreciation. Additionally, a $1.3 billion liability representing the present
value of the estimated cost of decommissioning nuclear units previously retired
was recorded as a long- term liability. These liabilities, as well as
investments in trust fund assets of $2.7 billion to fund the costs of
decommissioning, were transferred to Generation.
Additionally, as part of the corporate restructuring, ComEd's liability to
the U.S. Department of Energy (DOE) for payment of its one-time fee for spent
nuclear fuel disposal was transferred to Generation. As of December 31, 2000,
this liability, including accrued interest, was $810 million. Also, provisions
for nuclear insurance were assumed by Generation under terms and conditions
commensurate with those previously borne by ComEd.
98
3. Merger
On October 20, 2000, Exelon became the parent corporation of PECO
Energy Company (PECO) and ComEd as a result of the completion of the
transactions contemplated by an Agreement and Plan of Exchange and Merger, as
amended (Merger Agreement), among PECO, Unicom Corporation (Unicom) and Exelon.
Pursuant to the Merger Agreement, Unicom merged with and into Exelon (Merger).
In the Merger, each share of the outstanding common stock of Unicom was
converted into 0.875 shares of common stock of Exelon plus $3.00 in cash. As a
result of the Merger, Unicom ceased to exist and its subsidiaries, including
ComEd, became subsidiaries of Exelon.
The Merger was accounted for using the purchase method of accounting.
Purchase transactions resulting in one entity becoming substantially wholly
owned by the acquiror establish a new basis of accounting in the acquired
entity's records for the purchased assets and liabilities. Thus, the purchase
price has been allocated to the underlying assets purchased and liabilities
assumed based on their estimated fair values at the acquisition date. As a
result of the application of the purchase method of accounting, the following
fair value adjustments as adjusted to reflect final purchase price allocation,
including the elimination of accumulated depreciation, retained earnings and
other comprehensive income, were recorded in ComEd's Consolidated Balance
Sheets:
Total
-----
Increase (Decrease) in Assets:
Property, Plant and Equipment, net $(4,791)
Goodwill 5,051
Other Assets (254)
(Increase) Decrease in Liabilities and Shareholders' Equity:
Deferred Income Taxes 1,756
Unamortized Investment Tax Credits 401
Merger Severance Obligation (327)
Pension and Postretirement Benefit Obligations 471
Long-Term Debt and Preferred Securities 116
Other Liabilities (20)
Other Paid in Capital (3,201)
Retained Earnings 792
Accumulated Other Comprehensive Income 6
-------
Reductions to the carrying value of property, plant and equipment balances
primarily reflect the fair value of the nuclear generating assets based on
discounted cash flow analyses and independent appraisals. Adjustments to
deferred income taxes, long-term debt and preferred securities, and other assets
and liabilities were recorded based on the estimate of fair market value.
Reductions to unamortized investment tax credits represents the adjustment
of nuclear generating asset investment tax credits to fair value. Merger
severance obligations relating to ComEd's employee exit costs were recorded in
the purchase price allocation. Reductions to pension and postretirement benefit
obligations primarily reflect elimination of unrecognized net actuarial gains,
prior service costs and transition obligations.
Goodwill represents the purchase price allocation to ComEd of the cost in
excess of net assets acquired in the Merger, which was amortized over a forty
year period for 2000 and 2001. Annual amortization of goodwill related to the
Merger of $126 million was discontinued upon adoption of SFAS 142.
Goodwill associated with the Merger increased by $262 million in 2001
as a result of the finalization of the purchase price allocation. The adjustment
resulted primarily from the after-tax effects of a reduction of the regulatory
asset for decommissioning retired nuclear plants, additional employee separation
costs and the finalization of other purchase price allocations.
99
MERGER-RELATED COSTS
In connection with the Merger, ComEd recorded certain reserves for
restructuring costs. Costs incurred prior to the Merger were charged to expense.
Costs incurred subsequent to the Merger were reflected as part of the
application of purchase accounting and did not affect results of operations.
ComEd's Merger-related costs charged to expense in 2000 were $67 million
consisting of $26 million of direct incremental costs and $41 million for
employee costs. Direct incremental costs represent expenses directly associated
with completing the Merger, including professional fees, regulatory approval and
other merger integration costs. Employee costs represent estimated severance
payments provided under Exelon's Merger Separation Plan (MSP) for eligible
employees whose positions were eliminated before October 20, 2000 due to
integration activities of the merged companies.
Included in the purchase price allocation is a liability for employee costs
and liabilities for estimated costs of exiting business activities that were not
compatible with the strategic business direction of Exelon of $36 million.
During 2001, ComEd finalized its plans for consolidation of functions, including
negotiation of an agreement with the union regarding severance benefits to union
employees and recorded adjustments to the purchase price allocation. The
employee liabilities are as follows:
Original 2001 Adjusted
Estimate Adjustments Liabilities
-------- ----------- -----------
Employee severance payments (a) $128 $ 25 $153
Actuarially determined pension and
postretirement costs (b) 158 (13) 145
Relocation and other severance (a) 21 8 29
---- ---- ----
Total ComEd - Employee Cost $307 $ 20 $327
==== ==== ====
(a) The increase is a result of the identification in 2001 of additional
positions to be eliminated.
(b) The reduction results from lower estimated pension and post retirement
welfare benefits reflecting revised actuarial estimates.
The involuntary terminations are a result of merger integration and
reengineering of processes, primarily in the areas of corporate support,
generation, and energy delivery. During 2001 a portion of the liabilities that
related to Generation employees were transferred to Generation as part of the
corporate restructuring. Approximately 1,228 ComEd positions, reflecting the
corporate restructuring, have been identified to be eliminated as a result of
the Merger. ComEd anticipates that $85 million of employee costs will be funded
from its pension and postretirement benefit plans and $92 million will be funded
from general corporate funds. ComEd has terminated 399 employees as of December
31, 2001. The remaining positions are expected to be eliminated by the end of
2002.
100
The following table provides a reconciliation of the reserve for
employee severance and relocation costs associated with the Merger:
Employee severance and relocation reserve as of October 20, 2000 $ 149
Additional reserve 33
-----
Adjusted employee severance and relocation reserve 182
Payments to employees (October 2000-December 2001) (75)
Restructuring transfer (45)
-----
Employee severance and relocation reserve as of December 31, 2001, after restructuring 62
=====
4. Fossil Plant Sale
In December 1999, ComEd completed the sale of its fossil generating assets to
Edison Mission Energy, an Edison International subsidiary (EME), for a cash
purchase price of $4.8 billion. The fossil generating assets represented an
aggregate generating capacity of approximately 9,772 megawatts.
Just prior to the consummation of the fossil plant sale, ComEd transferred
these assets to an affiliate, Unicom Investment, Inc. (Unicom Investment). In
consideration for the transferred assets, Unicom Investment paid ComEd
consideration totaling approximately $4.8 billion in the form of a demand note
in the amount of approximately $2.4 billion and an interest-bearing note with a
maturity of twelve years. Unicom Investment immediately sold the fossil plant
assets to EME, in consideration of which Unicom Investment received
approximately $4.8 billion in cash from EME. Immediately after its receipt of
the cash payment from EME, Unicom Investment paid the demand note in full.
Unicom Investment used the remainder of the cash received from EME to fund other
business opportunities, including share repurchases. Of the cash received by
ComEd, $1.8 billion was used to pay the costs and taxes associated with the
fossil plant sale, including ComEd's contribution of $250 million of the
proceeds to an environmental trust as required by Illinois legislation. The
remainder of the demand note proceeds was available to ComEd to fund, among
other things, transmission and distribution projects, nuclear generation station
projects, and environmental and other initiatives.
The sale produced an after-tax gain of approximately $1.6 billion, after
recognizing commitments associated with certain coal contracts of $350 million,
employee-related costs of $112 million and contributing to the environmental
trust. The coal contract costs include the amortization of the remaining balance
of ComEd's regulatory asset for unrecovered coal reserves of $178 million and
the recognition of $172 million of settlement payments related to the
above-market portion of coal purchase commitments ComEd assigned to EME at
market value upon completion of the fossil plant sale. The severance costs
included pension and postretirement welfare benefit curtailment and special
termination benefit costs of $51 million and transition, separation and
retention payments of $61 million. A total of 1,730 fossil station employee
positions were eliminated upon completion of the fossil plant sale on December
15, 1999. The employees whose positions were eliminated have been terminated.
Consistent with the provisions of Illinois legislation, the pre-tax gain on the
sale of $2,587 million resulted in a regulatory liability, which was used to
recover regulatory assets. Therefore, the gain on the sale, excluding $43
million of amortization of investment tax credits, was recorded as a regulatory
liability in the amount of $2,544 million and amortized in the fourth quarter of
1999. The amortization of the regulatory liability and additional regulatory
asset amortization of $2,456 million are reflected in depreciation and
amortization expense on ComEd's Consolidated Statements of Income.
101
5. Regulatory Issues
In 2001, the phased process to implement competition into the electric industry
continued as mandated by the requirements of Illinois legislation.
Customer Choice As of December 31, 2000, all non-residential customers were
eligible to choose a new electric supplier or elect the power purchase option
which allows the purchase of electric energy from ComEd at market-based prices.
ComEd's residential customers become eligible to choose a new electric supplier
in May 2002. As of December 31, 2001, approximately 18,700 non-residential
customers, representing approximately 22% of ComEd's annual retail kilowatt-hour
sales, had elected to receive their electric energy from an alternative electric
supplier or had chosen the power purchase option. Customers who receive energy
from an alternative supplier continue to pay a delivery charge. ComEd is unable
to predict the long-term impact of customer choice on results of operations.
Rate Reductions and Return on Common Equity Threshold The Illinois legislation
provided a 15% residential base rate reduction effective August 1, 1998 with an
additional 5% residential base rate reduction effective October 1, 2001. ComEd's
operating revenues were reduced by $24 million in 2001 due to the 5% residential
rate reduction. Notwithstanding the rate reductions and subject to certain
earnings tests, a rate freeze will generally be in effect until at least January
1, 2005. A utility may request a rate increase during the rate freeze period
only when necessary to ensure the utility's financial viability. Under the
Illinois legislation, if the earned return on common equity of a utility during
this period exceeds an established threshold, one-half of the excess earnings
must be refunded to customers. The threshold rate of return on common equity is
based on the 30-Year Treasury Bond rate plus 8.5% in the years 2000 through
2004. Earnings for purposes of ComEd's threshold include ComEd's net income
calculated in accordance with GAAP and reflect the amortization of regulatory
assets and goodwill. As a result of Illinois legislation, at December 31, 2001,
ComEd had a regulatory asset with an unamortized balance of $277 million that it
expects to fully recover and amortize by the end of 2004. Consistent with the
provisions of the Illinois legislation, regulatory assets may be recovered at
amounts that provide ComEd an earned return on common equity within the Illinois
legislation earnings threshold. The utility's earned return on common equity and
the threshold return on common equity for ComEd are each calculated on a
two-year average basis. ComEd did not trigger the earnings sharing provision in
2000 or 2001 and does not currently expect to trigger the earnings sharing
provisions in the years 2002 through 2004.
Nuclear Decommissioning Costs In December 2000, the ICC issued an order,
effective upon the transfer of the nuclear plants to Generation (see Note 2 -
Corporate Restructuring), authorizing ComEd to recover $73 million annually from
customers during the first four years of the six-year term of the PPA between
ComEd and Generation. Up to $73 million annually can also be collected in 2005
and 2006, depending on the portion of the output of the former ComEd nuclear
stations that ComEd purchases from Generation. Under the ICC order, subsequent
to 2006, there would be no further collection for decommissioning costs from
customers. All amounts collected from customers must be remitted to Generation
for deposit into the related decommissioning trust funds. The ICC order also
provides that any surplus trust funds after ComEd's former nuclear stations are
decommissioned must be refunded to ComEd's customers. The ICC order has been
appealed to the Illinois Appellate Court by ComEd and other parties.
The $73 million annual recovery of decommissioning costs authorized by the
ICC order represents a reduction from the $84 million annual recovery in 2000.
Accordingly, in the first quarter of 2001, ComEd reduced its nuclear
decommissioning regulatory asset to $372 million, reflecting the expected
probable future recoveries from customers. The reduction in the
102
regulatory asset in the amount of $347 million was recorded as an adjustment to
the Merger purchase price allocation and resulted in a corresponding increase in
goodwill. Effective January 1, 2001, ComEd recorded an obligation to Generation
of approximately $440 million representing ComEd's legal requirement to remit
funds to Generation for the remaining regulatory asset amount of $372 million
upon collection from customers, and for collections from customers prior to the
establishment of external decommissioning trust funds in 1989 to be remitted to
Generation for deposit into the decommissioning trusts through 2006. At December
31, 2001, the nuclear decommissioning regulatory asset had an unamortized
balance of $310 million.
6. Supplemental Financial Information
SUPPLEMENTAL INCOME STATEMENT INFORMATION
For the Period
-----------------------------------
For the Year For the Year
Ended October 20- January 1- Ended
December 31, December 31, October 19, December 31,
2001 2000 | 2000 1999
------------ ------------- | ------------- ------------
|
|
TAXES OTHER THAN INCOME |
Utility $203 $52 | $224 $288
Real estate 33 22 | 101 114
Payroll 28 12 | 57 70
Other 32 (3) | 43 35
---- --- | ---- ----
Total $296 $83 | $425 $507
==== === | ==== ====
The decrease in taxes other than income from the prior year was primarily due to
the corporate restructuring in which ComEd's nuclear generating stations were
transferred to Generation (see Note 2 - Corporate Restructuring) and a change in
presentation of certain revenue taxes which did not affect income.
For the Period
-----------------------------------
For the Year For the Year
Ended October 20- January 1- Ended
December 31, December 31, October 19, December 31,
2001 2000 | 2000 1999
------------ ------------- | ------------- ------------
|
|
OTHER, NET |
Investment income $18 $ 9 | $ 39 $ 52
Gain (loss) on forward share |
repurchase -- -- | 113 (44)
Gain (loss) on disposition of |
assets, net -- -- | (31) 13
AFUDC, equity and borrowed 17 -- | 19 22
Other income (expense) -- (7) | (13) 9
--- --- | ---- ----
Total $35 $ 2 | $127 $ 52
=== === | ==== ====
103
SUPPLEMENTAL CASH FLOW INFORMATION
For the Period
-----------------------------------
For the Year For the Year
Ended October 20- January 1- Ended
December 31, December 31, October 19, December 31,
2001 2000 | 2000 1999
------------ ------------- | ------------- ------------
|
Cash paid during the year: |
|
Interest (net of amount capitalized) $451 $ 88 | $ 418 $588
Income taxes (net of refunds) $300 $ 11 | $1,190 $485
Noncash investing and financing: |
Capital lease obligations |
incurred -- -- | -- $ 2
Common stock repurchase -- $850 | -- --
Settlement of forward share |
Repurchase arrangement -- -- | $ 993 --
Deferred tax on fossil plant sale -- -- | $1,094 --
Net assets transferred as a |
result of the restructuring, |
net of note payable $1,368 -- | -- --
Contribution of receivable from |
parent $1,062 -- | -- --
Purchase accounting estimate |
adjustments $ (85) -- | -- --
Regulatory asset fair value |
adjustment $ 347 -- | -- --
Retirement of treasury shares $2,023 -- | -- --
|
Depreciation and amortization: |
Property, plant and equipment $369 $ 82 | $ 543 $706
Nuclear fuel -- 44 | 144 66
Regulatory assets 170 9 | 257 46
Decommissioning -- 16 | 68 84
Goodwill 126 23 | -- ---
---- ---- | ------ ----
Total Depreciation and amortization $665 $174 | $1,012 $902
==== ==== | ====== ====
SUPPLEMENTAL BALANCE SHEET INFORMATION
REGULATORY ASSETS
at December 31,
---------------
2001 2000
---- ----
Nuclear decommissioning costs for retired plants $ 310 $ 719
Recoverable transition costs 277 385
Loss on reacquired debt 54 35
Recoverable deferred income taxes (see Note 11) 26 (29)
------- -------
Total $ 667 $ 1,110
======= =======
See Note 5 - Regulatory Issues - regarding the decrease in nuclear
decommissioning costs for retired plants from the prior year.
104
7. Accounts Receivable
Accounts receivable - Customer at December 31, 2001 and 2000 included unbilled
operating revenues of $261 million and $318 million, respectively. The allowance
for uncollectible accounts at December 31, 2001 and 2000 was $49 million and $60
million, respectively.
8. Property, Plant and Equipment
A summary of property, plant and equipment by classification as of December 31,
2001 and 2000 is as follows:
2001 2000
---- ----
Electric -- Transmission & Distribution $6,098 $5,612
Electric -- Generation -- 1,957
Nuclear Fuel -- 677
Construction Work in Progress 547 683
Plant Held for Future Use 46 50
Other Property, Plant and Equipment 896 912
------ ------
Total Property, Plant and Equipment $7,587 $9,891
Less Accumulated Depreciation 236 2,234
------ ------
Property, Plant and Equipment, net $7,351 $7,657
====== ======
Accumulated depreciation as of December 31, 2000 includes accumulated
amortization of nuclear fuel $52 million, and the nuclear decommissioning
liability for the nuclear operating units of $2.1 billion which were transferred
to Generation as part of the corporate restructuring.
The decrease in the net property, plant and equipment balance from the
prior year was primarily due to the corporate restructuring in which ComEd's
nuclear generating stations were transferred to Generation (see Note 2 -
Corporate Restructuring).
9. Notes Payable
2001 2000 1999
---- ---- ----
Average borrowings -- $ 214 $ 7
Average interest rates, computed on daily basis -- 6.56% 7.75%
Maximum borrowings outstanding -- $ 494 $ 8
Average interest rates, at December 31 -- -- 8.33%
---- ---- ----
Along with Exelon, PECO, and Generation, ComEd, is a party to a $1.5 billion
364-day unsecured revolving credit facility on December 12, 2001 with a group of
banks. ComEd has a $300 million sublimit under this credit facility, which is
used principally to support ComEd's commercial paper program. There was no
outstanding debt under this credit facility or commercial paper at December 31,
2001. Interest rates on borrowings under this credit facility are based on the
London Interbank Offering Rate as of the date of the advance.
105
10. Long-Term Debt
at December 31, 2001 at December 31,
-------------------- ---------------
Maturity
Rates Date 2001 2000
----- ---- ---- ----
ComEd Transitional Trust Notes
Series 1998-A: 5.34%-5.74% 2002-2008 $ 2,380 $ 2,720
First and Refunding Mortgage Bonds (a) (b):
Fixed rates 4.40%-9.875% 2002-2023 2,916 3,112
Notes payable 6.40%-9.20% 2002-2018 1,366 1,366
Pollution control bonds:
Fixed rates 5.875% 2007 44 46
Floating rates 2.59% 2009-2014 92 92
Sinking fund debentures 3.125%-4.75% 2004-2011 23 27
------------ --------- -------- --------
Total Long-Term Debt (c) 6,821 7,363
Unamortized debt discount and premium, net (122) (133)
Due within one year (849) (348)
-------- --------
Long-Term Debt $ 5,850 $ 6,882
======== ========
(a) Utility plant of ComEd is subject to the liens of its mortgage indenture.
(b) Includes pollution control bonds secured by first mortgage bonds issued
under ComEd's mortgage indenture.
(c) Long-term debt maturities in the period 2002 through 2006 and thereafter
are as follows:
2002 $ 849
2003 697
2004 579
2005 806
2006 770
Thereafter 3,120
-------
Total $ 6,821
=======
In 2001, ComEd entered into forward-starting interest rate swaps, with an
aggregate notional amount of $250 million, to manage interest rate exposure
associated with the anticipated $400 million refinancing of ComEd First Mortgage
Bonds in the first quarter of 2002. ComEd also entered into an interest rate
swap agreement with a notional amount of $235 million to effectively convert
fixed rate debt to floating rate debt.
Prepayment premiums of $39 million, offset by unamortized issuance premiums
of $17 million, associated with the early retirement of debt in 2001, have been
deferred and recorded as regulatory assets and will be amortized to interest
expense over the life of the related new debt issuance consistent with
regulatory recovery. In 2000 and 1999, ComEd incurred extraordinary charges
aggregating $6 million ($4 million, net of tax), and $46 million ($28 million,
net of tax), respectively, consisting of prepayment premiums and the write-offs
of unamortized deferred financing costs associated with the early retirement of
debt.
106
11. Income Taxes
Income tax expense (benefit) is comprised of the following components:
For the Period
--------------
For the Year For the Year
Ended Oct. 20- Jan. 1- Ended
December 31, Dec. 31, Oct. 19, December 31,
2001 2000 2000 1999
---- ---- ---- ----
|
Included in operations: |
Federal |
|
Current $400 $24 | $(520) $1,466
Deferred 16 57 | 729 (1,135)
Investment tax credit, net (4) -- | (25) (78)
State |
Current 92 7 | (112) 316
Deferred 2 15 | 157 (243)
---- ---- | ---- ----
$506 $103 | $229 $326
==== ==== | ==== ====
Included in extraordinary items: |
Federal |
|
Current $ -- $ -- | $(2) $(15)
State |
---- ---- | ---- ----
Current -- -- | -- (3)
---- ---- | ---- ----
$ -- $ -- | $(2) $(18)
==== ==== | ==== ====
The effective tax rate varies from the U.S. federal statutory rate for the years
ended December 31 principally due to the following:
For the Period
--------------
For the Year For the Year
Ended Oct. 20- Jan. 1- Ended
December 31, Dec. 31, Oct. 19, December 31,
2001 2000 2000 1999
---- ---- | ---- ----
|
|
|
U.S. Federal statutory rate 35.0% 35.0% | 35.0% 35.0%
Increase (decrease) due to: |
Plant basis differences 0.3 (1.7) | (3.7) (2.2)
State income taxes, net of |
Federal Income Tax |
benefit 5.5 5.9 | 3.6 4.9
Amortization of goodwill 4.0 3.4 | -- --
Amortization of investment tax |
credit (0.4) -- | (2.3) (5.0)
Amortization of regulatory asset 1.4 -- | -- --
Unrealized loss (gain) on forward |
share, repurchase arrangement -- -- | (4.8) 1.5
Other, net (0.3) 1.0 | (0.3) (0.8)
---- ---- | ---- ----
Effective income tax rate 45.5% 43.6% | 27.5% 33.4%
==== ==== | ==== ====
107
The tax effect of temporary differences giving rise to significant portions of
ComEd's deferred tax assets and liabilities as of December 31, 2001 and 2000 are
presented below:
2001 2000
---- ----
Deferred tax liabilities:
Plant basis difference $ 1,149 $ 1,638
Deferred investment tax credit 55 59
Deferred debt refinancing costs 13 14
Deferred gain on like-kind exchange 453 466
Other, net 123 --
------- --------
Total deferred tax liabilities 1,793 2,177
------- --------
Deferred tax assets:
Deferred pension and postretirement obligations (119) (250)
Other, net -- (120)
------- --------
Total deferred tax assets (119) (370)
------- --------
Deferred income taxes (net) on the balance sheet $ 1,674 $ 1,807
======= ========
In accordance with regulatory treatment of certain temporary differences, ComEd
has recorded a regulatory asset/(liability) for recoverable deferred income
taxes of $26 million and $(29) million at December 31, 2001 and 2000,
respectively. These recoverable deferred income taxes include the deferred tax
effects associated principally with liberalized depreciation accounted for in
accordance with the ratemaking policies of the ICC, as well as the revenue
impacts thereon, and assume continued recovery of these costs in future rates.
The Internal Revenue Service is currently auditing ComEd's Federal tax
returns for 1996 through 1999. The current audits are not expected to have an
adverse impact on the financial condition or results of operations of ComEd.
12. Retirement Benefits
ComEd has adopted defined benefit pension plans and postretirement welfare
benefit plans sponsored by Exelon. Essentially all ComEd employees are eligible
to participate in these plans. In 2001, ComEd's former plans were consolidated
into the Exelon plans. Essentially all ComEd management employees, and electing
union employees, hired on or after January 1, 2001 are eligible to participate
in newly established Exelon cash balance pension plan. Management employees who
were active participants in the former ComEd pension plans on December 31, 2000
and remain employed by ComEd on January 1, 2002, will have the opportunity to
continue to participate in the pension plan or to transfer to the cash balance
plan. Benefits under these pension plans generally reflect each employee's
compensation, years of service, and age at retirement. Funding is based upon
actuarially determined contributions that take into account the amount
deductible for income tax purposes and the minimum contribution required under
the Employee Retirement Income Security Act of 1974, as amended. The following
tables provide a reconciliation of benefit obligations, plan assets, and funded
status for ComEd's proportionate allocated interest in the plans.
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Pension Benefits Other Postretirement Benefits
---------------- -----------------------------
2001 2000 2001 2000
---- ---- ---- ----
Change in Benefit Obligation:
Net benefit obligation at beginning of year 4,460 $ 4,119 $ 1,354 $ 1,169
Corporate restructuring (2,240) -- (815) --
Service cost 38 70 13 33
Interest cost 219 310 40 88
Plan participants' contributions -- -- 1 --
Plan amendments -- -- (76) --
Actuarial (gain)loss 116 91 (11) 76
Special accounting costs -- 125 -- 42
Gross benefits paid (145) (255) (31) (54)
-------- ------- --------- --------
Net benefit obligation at end of year $ 2,448 $ 4,460 $ 475 $ 1,354
======== ======= ========= ========
Change in Plan Assets:
Fair value of plan assets at beginning of year $ 3,992 $ 4,266 $ 925 $ 949
Corporate restructuring (2,006) -- (574) --
Actual return on plan assets (68) (24) (3) (2)
Employer contributions 9 5 15 32
Plan participants' contributions -- -- 1 4
Gross benefits paid (145) (255) (31) (58)
-------- ------- --------- --------
Fair value of plan assets at end of year $ 1,782 $ 3,992 $ 333 $ 925
======== ======= ========= ========
Funded status at end of year $ (666) $ (468) $ (142) $ (429)
Miscellaneous adjustment -- -- -- 6
Unrecognized net actuarial (gain)loss 515 183 72 108
Unrecognized prior service cost -- -- (76) --
-------- ------- --------- --------
Net amount recognized at end of year $ (151) $ (285) $ (146) $ (315)
======== ======= ========= ========
Pension Benefits Other Postretirement Benefits
-------------------------------- -------------------------------------
2001 2000 1999 2001 2000 1999
---- ---- ---- ---- ---- ----
WEIGHTED-AVERAGE ASSUMPTIONS
AS OF DECEMBER 31,
Discount rate 7.35% 7.60% 6.75% 7.35% 7.60% 6.75%
Expected return on plan assets 9.50% 9.50% 9.25% 9.50% 9.22% 8.97%
Rate of compensation increase 4.00% 4.00% 4.00% 4.00% 4.00% 4.00%
Health care cost trend on
covered charges N/A N/A N/A 10.00% 7.00% 8.00%
decreasing decreasing decreasing
to ultimate to ultimate to ultimate
trend of 4.5% trend of 5.0% trend of 5.0%
in 2008 in 2005 in 2005
109
Pension Benefits Other Postretirement Benefits
---------------------- -----------------------
2001 2000 1999 2001 2000 1999
---- ---- ---- ---- ---- ----
COMPONENTS OF NET PERIODIC
BENEFIT COST (BENEFIT):
Service cost $ 38 $ 70 $ 120 $ 13 $ 33 $ 41
Interest cost 219 310 285 40 88 82
Expected return on assets (246) (394) (362) (36) (85) (76)
Amortization of:
Transition obligation (asset) -- (9) (13) -- 16 22
Prior service cost -- (1) (4) (4) 3 4
Actuarial (gain) loss -- (5) 3 1 (17) (14)
Curtailment charge (credit) -- -- 16 -- -- 35
Settlement charge (credit) -- -- -- -- -- 1
----- ------ ------ -------- ------ -----
Net periodic benefit cost (benefit) $ 11 $ (29) $ 45 $ 14 $ 38 $ 95
===== ====== ====== ======== ====== =====
Special accounting costs $ -- $ 4 $ -- $ -- $ 5 $ --
===== ====== ====== ======== ====== =====
SENSITIVITY OF RETIREE WELFARE RESULTS
Effect of a one percentage point increase in assumed health care cost trend
on total service and interest cost components $ 10
on postretirement benefit obligation $ 60
Effect of a one percentage point decrease in assumed health care cost trend
on total service and interest cost components $ (8)
on postretirement benefit obligation $ (54)
The decrease in the net benefit obligation and the fair value of plan assets
from the prior year is due primarily to the corporate restructuring (see Note 2
- - Corporate Restructuring). Amounts of the obligation allocated to affiliates in
the restructuring were primarily based on the relative number of active
employees transferred to each affiliate.
Prior service cost is amortized on a straight-line basis over the
average remaining service period of employees expected to receive benefits under
the plans.
Special accounting costs in 2000 of $125 million represent ComEd's
accelerated liability increase, including $100 million for separation benefits
and $25 million for plan enhancements.
ComEd provides certain health care and life insurance benefits for
retired employees through plans sponsored by Exelon. In 2001, to more closely
align the benefit plans of ComEd and PECO, Exelon amended the former ComEd
postretirement medical benefit plan that changed the eligibility requirement of
the plan to cover only employees who retire with 10 years of service after age
45 rather than with 10 years of service and having attained the age of 55.
Welfare benefits for active employees are provided by several insurance policies
or self-funded plans whose premiums or contributions are based upon the benefits
paid during the year.
Additionally, ComEd provides nonqualified supplemental retirement plans
which cover any excess pension benefits that would be payable to management
employees under the qualified plan but which are limited by the Internal Revenue
Code. The fair value of plan assets excludes $23 million held in a trust as of
December 31, 2001 for the payment of benefits under the supplemental plans and
$8 million held in a trust as of December 31, 2001 for the payment of
postretirement medical benefits.
ComEd has savings plans for the majority of its employees. The plans
allow employees to contribute a portion of their pretax income in accordance
with specified guidelines. ComEd matches a percentage of the employee
contribution up to certain limits. The cost of ComEd's matching contribution to
the savings plans totaled $20 million, $31 million, and $32 million in 2001,
2000 and 1999, respectively.
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13. Preferred Securities
PREFERRED AND PREFERENCE STOCK At December 31, 2000, there were 51,773
authorized shares of $1.425 convertible preferred stock. At December 31, 2001
and 2000, there were 6,810,451 authorized shares of preference stock and 850,000
authorized shares of prior preferred stock.
at December 31,
Shares Outstanding Dollar Amount
------------------ -------------
2001 2000 1999 2001 2000 1999
---- ---- ---- ---- ---- ----
WITHOUT MANDATORY REDEMPTION
$1.425 convertible preferred stock,
cumulative, without par value -- -- 56,291 $ -- $ -- $ 2
Preference stock, non-cumulative,
without par value 1,120 1,120 1,120 7 7 7
----- ----- ------ ----- ---- ------
Total preferred and preference stock 1,120 1,120 57,411 $ 7 $ 7 $ 9
===== ===== ====== ===== ==== ======
Preferred and preference stock redemptions were 56,291 and 13,502,949 shares in
2000 and 1999, respectively.
COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY
TRUSTS HOLDING SOLELY THE COMPANY'S SUBORDINATED DEBT SECURITIES At December 31,
2001 and 2000, subsidiary trusts of ComEd had outstanding the following
securities:
Mandatory at December 31,
--------- ---------------
Redemption Distribution Liquidation Trust Receipts Outstanding Dollar Amount
---------- ------------ ----------- -------------------------- -------------
Series Date Rate Value 2001 2000 2001 2000
- ------ ---- ---- ----- ---- ---- ---- ----
ComEd Financing I 2035 8.48% $ 25 8,000,000 8,000,000 $ 200 $200
ComEd Financing II 2027 8.50% 1,000 150,000 150,000 150 150
Unamortized Discount -- -- (21) (22)
--------- --------- ----- ----
Total 8,150,000 8,150,000 $ 329 $328
========= ========= ===== ====
ComEd Financing I and ComEd Financing II are wholly owned subsidiary trusts of
ComEd. The sole assets of each ComEd trust are subordinated deferrable interest
debt securities issued by ComEd bearing interest rates equivalent to the
distribution rate of the related trust security.
The interest expense on the deferrable interest debt securities is
included in Distributions on Company-Obligated Mandatorily Redeemable Preferred
Securities of Subsidiary Trusts Holding Solely the Company's Subordinated Debt
Securities in ComEd's Consolidated Statements of Income and is deductible for
income tax purposes.
14. Common Stock
At December 31, 2001 and 2000, common stock with a $12.50 par value consisted of
250,000,000 and 250,000,000 shares authorized and 127,016,000 and 163,805,000
shares outstanding, respectively.
During the second quarter of 2001, ComEd canceled 50.4 million of its
common shares totaling $2.023 million.
At December 31, 2001 and 2000, 67,317 and 74,988, respectively, of ComEd
common stock purchase warrants were outstanding. The warrants entitle the
holders to convert such warrants into common stock of ComEd at a conversion rate
of one share of common stock for three warrants. At December 31, 2001, 22,439
shares of common stock were reserved for the conversion of warrants.
111
FORWARD PURCHASE AGREEMENTS In the fourth quarter of 1998, ComEd entered into a
forward purchase arrangement with Unicom for the repurchase of $200 million of
ComEd common stock. This contract, which was accounted for as an equity
instrument as of December 31, 1999, was settled on a net cash basis in February
1999, resulting in a $16 million reduction to Common Stock equity on ComEd's
Consolidated Balance Sheets.
In January 2000, ComEd physically settled the forward share repurchase
arrangements it had with Unicom for the repurchase of 26.3 million ComEd common
shares. Prior to settlement, the repurchase arrangements were recorded as a
receivable on ComEd's Consolidated Balance Sheets based on the aggregate market
value of the shares under the arrangements. In 1999, net unrealized losses of
$44 million (after-tax) were recorded related to the arrangements. The
settlement of the arrangements in January 2000 resulted in a gain of $113
million (after-tax), which was recorded in the first quarter of 2000. The
settlement of the arrangements resulted in a reduction in ComEd's outstanding
common shares and common stock equity, effective January 2000.
STOCK REPURCHASES During the first quarter of 2000, ComEd repurchased four
million of its common shares from Unicom for $153 million using proceeds from
the 1998 issuance of transitional trust notes.
In the fourth quarter of 2000, ComEd repurchased 19.9 million of its
common shares from Unicom in exchange for an $850 million note receivable ComEd
held from Unicom Investment.
As part of the restructuring, ComEd received 36.8 million of its common
shares from Exelon totaling $1,344 million in exchange for the net assets
transferred to Generation and notes payable received from Generation.
SHARES OUTSTANDING The following table details ComEd's common stock and treasury
stock:
Common Treasury
(in thousands) Shares Shares
- -------------- ------ ------
Balance, December 31, 1998 214,236 179
Conversion of $1.425 Preferred Stock 2 --
Common Stock Repurchases -- 85
------- ------
Balance, December 31, 1999 214,238 264
Conversion of $1.425 Preferred Stock 4 --
Common Stock Repurchases -- 3,964
Stock Forward Repurchase Contract -- 26,268
------- ------
Balance, October 19, 2000 214,242 30,496
Common Stock Repurchases -- 19,941
------- ------
Balance, December 31, 2000 214,242 50,437
Retirement of Treasury Shares (50,437) (50,437)
Restructuring (see Note 2 - Corporate Restructuring) -- 36,789
------- ------
Balance, December 31, 2001 163,805 36,789
======= ======
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15. Fair Value of Financial Assets and Liabilities
The carrying amounts and fair values of ComEd's financial instruments as of
December 31, 2001 and 2000 were as follows:
2001 2000
---- ----
Carrying Carrying
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
NON-DERIVATIVES:
Liabilities
Long-term debt (including
amounts due within one year) $ 6,699 $ 7,088 $ 7,230 $ 7,455
Company-Obligated Mandatorily
Redeemable Preferred Securities $ 329 $ 394 $ 328 $ 347
DERIVATIVES:
Energy derivatives -- -- (34) (34)
Forward interest rate swaps (1) (1) -- --
--------- -------- -------- ---------
Cash and cash equivalents, customer accounts receivable, and trust accounts for
decommissioning nuclear plants are recorded at their fair value.
As of December 31, 2001 and 2000, ComEd's carrying amounts of cash and
cash equivalents and accounts receivable are representative of fair value
because of the short-term nature of these instruments. Fair values of the trust
accounts for decommissioning nuclear plants, long-term debt, and
Company-Obligated Mandatorily Redeemable Preferred Securities are estimated
based on quoted market prices for the same or similar issues. The fair value of
ComEd's interest rate swaps and energy derivatives is determined using quoted
exchange prices, external dealer prices, or internal valuation models which
utilize assumptions of future energy prices and available market pricing curves.
Financial instruments that potentially subject ComEd to concentrations
of credit risk consist principally of cash equivalents and customer accounts
receivable. ComEd places its cash equivalents with high-credit quality financial
institutions. Generally, such investments are in excess of the Federal Deposit
Insurance Corporation limits. Concentrations of credit risk with respect to
customer accounts receivable are limited due to ComEd's large number of
customers and their dispersion across many industries.
ComEd has entered into forward-starting interest rate swaps to manage
interest rate exposure in the aggregate notional amount of $250 million. These
swaps have been designated as cash-flow hedges under SFAS 133, and as such, as
long as the hedge remains effective, and the underlying transaction remains
probable, changes in the fair value of these swaps will be recorded in
accumulated other comprehensive income (loss) until earnings are affected by the
variability of the cash flows being hedged.
ComEd has also entered into an interest rate swap to effectively
convert $235 million in fixed-rate debt to a floating rate debt. This swap has
been designated as a fair-value hedge, as defined in SFAS No. 133 and as such,
changes in the fair value of the swap will be recorded in earnings. However, as
long as the hedge remains effective and the underlying transaction remains
probable, changes in the fair value of the swap will be offset by changes in the
fair value of the hedged liabilities. Any change in the fair value of the hedge
as a result of ineffectiveness would be recorded immediately in earnings.
The notional amount of derivatives do not represent amounts that are
exchanged by the parties and, thus, are not a measure of ComEd's exposure. The
amounts exchanged are calculated on the basis of the notional or contract
amounts, as well as on the other terms of the derivatives, which relate to
interest rates and the volatility of these rates.
113
ComEd would be exposed to credit-related losses in the event of
non-performance by the counterparties that issued the derivative instruments.
The credit exposure of derivative contracts is represented by the fair value of
contracts at the reporting date. ComEd's interest rate swaps are documented
under master agreements. Among other things, these agreements provide for a
maximum credit exposure for both parties. Payments are required by the
appropriate party when the maximum limit is reached.
The initial adoption of SFAS No.133, as amended, on January 1, 2001 had
no financial statement impact on ComEd. SFAS No. 133 must be applied to all
derivative instruments and requires that such instruments be recorded in the
balance sheet either as an asset or a liability measured at their fair value
through earnings, with special accounting permitted for certain qualifying
hedges.
Additionally, during 2001, no amounts were reclassified from
accumulated other comprehensive income into earnings as a result of forecasted
financing transactions no longer being probable.
16. Commitments and Contingencies
CAPITAL COMMITMENTS ComEd estimates that it will spend approximately $781
million for capital expenditures in 2002.
ENERGY COMMITMENTS In connection with the corporate restructuring (see Note 2 -
Corporate Restructuring), ComEd assigned its respective rights and obligations
under various power purchase and fuel supply agreements to Generation.
Additionally, ComEd entered into a PPA with Generation.
Under the PPA between ComEd and Generation, Generation has agreed to
supply all of ComEd's load requirements through 2004. Prices for this energy
vary depending upon the time of day and month of delivery. During 2005 and 2006,
ComEd's PPA is a partial requirements agreement under which ComEd will purchase
all of its required energy and capacity from Generation, up to the available
capacity of the nuclear generating plants formerly owned by ComEd and
transferred to Generation. Under the terms of the PPA, Generation is responsible
for obtaining any required transmission service. The PPA also specifies that
prior to 2005, ComEd and Generation will jointly determine and agree on a
market-based price for energy delivered under the PPA for 2005 and 2006. In the
event that the parties cannot agree to market-based prices for 2005 and 2006
prior to July 1, 2004, ComEd has the option of terminating the PPA effective
December 31, 2004. ComEd will obtain any additional supply required from market
sources in 2005 and 2006, and subsequent to 2006, will obtain all of its supply
from market sources, which could include Generation.
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ENVIRONMENTAL ISSUES ComEd's operations have in the past and may in the future
require substantial capital expenditures in order to comply with environmental
laws. Additionally, under Federal and state environmental laws, ComEd is
generally liable for the costs of remediating environmental contamination of
property now or formerly owned by ComEd and of property contaminated by
hazardous substances generated by ComEd. ComEd owns a number of real estate
parcels, including parcels on which its operations or the operations of others
may have resulted in contamination by substances which are considered hazardous
under environmental laws. ComEd has identified 44 sites where former
manufactured gas plant (MGP) activities have or may have resulted in actual site
contamination. ComEd is currently involved in a number of proceedings relating
to sites where hazardous substances have been deposited and may be subject to
additional proceedings in the future.
As of December 31, 2001 and 2000, ComEd had accrued $105 million and
$117 million, respectively, for environmental investigation and remediation
costs, including $100 million and $110 million, respectively, (reflecting
discount rates of 5.5%) for MGP investigation and remediation, that currently
can be reasonably estimated. Such estimates, reflecting the effects of a 3%
inflation rate before the effects of discounting were $154 million and $170
million at December 31, 2001 and 2000, respectively. ComEd anticipates that
payments related to the discounted environmental investigation and remediation
costs, recorded on an undiscounted basis of $68 million, will be incurred for
the five year period through 2006. ComEd cannot reasonably estimate whether it
will incur other significant liabilities for additional investigation and
remediation costs at these or additional sites identified by ComEd,
environmental agencies or others, or whether such costs will be recoverable from
third parties.
LEASES Minimum future operating lease payments, including lease payments for
real estate and vehicles, as of December 31, 2001 were:
2002 $ 28
2003 27
2004 24
2005 20
2006 19
Remaining years 68
-------
Total minimum future lease payments $ 186
=======
Rental expense under operating leases totaled $23 million, $30 million, and $45
million in 2001, 2000 and 1999, respectively.
LITIGATION
Chicago Franchise. In March 1999, ComEd reached a settlement agreement with the
City of Chicago to end the arbitration proceeding between ComEd and Chicago
regarding the January 1, 1992 franchise agreement. As part of the settlement
agreement, ComEd and Chicago agreed to a revised combination of ongoing work
under the franchise agreement and new initiatives that total approximately $1
billion in defined transmission and distribution expenditures by ComEd to
improve electric services in Chicago, of which approximately $940 million has
been expended through December 31, 2001. The settlement agreement provides that
ComEd would be subject to liquidated damages if the projects are not completed
by various dates, unless it was prevented from doing so by events beyond its
reasonable control. In addition, ComEd and Chicago established an Energy
Reliability and Capacity Account, into which ComEd deposited $25 million during
each of the years 1999 through 2001 and has conditionally agreed to deposit $25
million at the end of 2002, to help ensure an adequate and reliable electric
supply for Chicago.
115
FERC Municipal Request for Refund. Three of ComEd's wholesale municipal
customers filed a complaint and request for refund with the FERC alleging that
ComEd failed to properly adjust its rates, as provided for under the terms of
the electric service contracts with the municipal customers and to track certain
refunds made to ComEd's retail customers in the years 1992 through 1994. In the
third quarter of 1998, FERC granted the complaint and directed that refunds be
made, with interest. ComEd filed a request for rehearing. On April 30, 2001,
FERC issued an order granting rehearing in which it determined that its 1998
order had been erroneous and that no refunds were due from ComEd to the
municipal customers. On June 29, 2001, FERC denied the customers' requests for
rehearing of the order granting rehearing. In August 2001, each of the three
wholesale municipal customers appealed the April 30, 2001 FERC order to the
Federal circuit court, which consolidated the appeals for the purposes of
briefing and decision. In November 2001, the court suspended briefing pending
court-initiated settlement discussions.
Godley Park District Litigation. On April 18, 2001, the Godley Park District
filed suit in Will County Circuit Court against ComEd and Exelon alleging that
oil spills at Braidwood Station have contaminated the Park District's water
supply. The complaint sought actual damages, punitive damages of $100 million
and statutory penalties. The court dismissed all counts seeking punitive damages
and statutory penalties, and the plaintiff has filed an amended complaint after
the court. ComEd is contesting the liability and damages sought by the
plaintiff.
Retail Rate Law. In 1996, several developers of non-utility generating
facilities filed litigation against various Illinois officials claiming that the
enforcement against those facilities of an amendment to Illinois law removing
the entitlement of those facilities to state-subsidized payments for electricity
sold to ComEd after March 15, 1996 violated their rights under the Federal and
State of Illinois constitutions. The developers also filed suit against ComEd
for a declaratory judgement that their rights under their contracts with ComEd
were not affected by the amendment. On August 4, 1999, the Illinois Appellate
Court held that the developers' claims against the state were premature, and the
Illinois Supreme Court denied leave to appeal that ruling. Developers of both
facilities have since filed amended complaints repeating their allegations that
ComEd breached the contracts in question and requesting damages for such breach,
in the amount of the difference between the state-subsidized rate and the amount
ComEd was willing to pay for the electricity. ComEd is contesting this matter.
Service Interruptions. In August 1999, three class action lawsuits were filed
against ComEd, and subsequently consolidated, in the Circuit Court of Cook
County, Illinois seeking damages for personal injuries, property damage and
economic losses related to a series of service interruptions that occurred in
the summer of 1999. The combined effect of these interruptions resulted in over
168,000 customers losing service for more than four hours. Conditional class
certification was approved by the court for the sole purpose of exploring
settlement talks. ComEd filed a motion to dismiss the complaints. On April 24,
2001, the court dismissed four of the five counts of the consolidated complaint
without prejudice and the sole remaining count was dismissed in part. On June 1,
2001, the plaintiffs filed a second amended consolidated complaint and ComEd has
filed an answer. A portion of any settlement or verdict may be covered by
insurance; discussions with the carrier are ongoing. ComEd's management believes
adequate reserves have been established in connection with these cases.
Enron. As a result of Enron Corp.'s bankruptcy proceeding, ComEd has
potential monetary exposure for customers served by Enron Energy Services (EES)
as a billing agent. On January 7, 2002, EES was authorized by the bankruptcy
court to, and subsequently did, reject its contract with 129 of ComEd's customer
accounts. As of March 15, 2002, EES was the billing agent for 97 of ComEd's
customer accounts. EES has advised Exelon that it will retain its billing
116
agency with these remaining accounts. ComEd is working to ensure that customers
know what amounts are owed to ComEd on 269 accounts on which EES has been
removed as billing agent, and has obtained updated billing addresses for these
accounts. With regard to the 97 remaining accounts, as of March 15, 2002,
ComEd's total amount outstanding is immaterial. Because that amount is owed to
ComEd by individual customers, it is not part of the bankrupt Enron's estate.
The ICC has rescinded EES's authority to act as an alternative retail energy
supplier in Illinois. However, EES never served as a supplier, as opposed to a
billing agent, to any of ComEd's retail accounts.
General. ComEd is involved in various other litigation matters. The ultimate
outcome of such matters, while uncertain, is not expected to have a material
adverse effect on its respective financial condition or results of operations.
17. Related-Party Transactions
At December 31, 2000, ComEd had a $400 million receivable from PECO, which was
repaid in the second quarter of 2001. The average interest rate on this
receivable for the period outstanding was 6.5%. Interest income on the
receivable from PECO was $8 million for the year ended December 31, 2001.
ComEd had a $1.3 billion note receivable from Unicom Investment Inc. at
December 31, 2001 and December 31, 2000, relating to the December 1999 fossil
plant sale, which is included in Deferred Debits and Other Assets in ComEd's
Consolidated Balance Sheets. Interest income earned on this note receivable was
$61 million and $176 million for the years ended December 31, 2001 and 2000.
Interest receivable due on this note was $24 million and $38 million at December
31, 2001 and December 31, 2000, respectively, and was included in Current
Assets on ComEd's Consolidated Balance Sheets.
At December 31, 2001, ComEd had a $937 million non-interest bearing
receivable from Exelon relating to Exelon's agreement to fund future income tax
payments resulting from the collection by ComEd of instrument funding charges.
This receivable is reflected as a reduction of Shareholders' Equity in ComEd's
Consolidated Balance Sheets and is expected to be settled over the years 2002
through 2008.
At December 31, 2001, ComEd had a short-term payable of $59 million and
a long-term payable of $290 million to Generation primarily representing ComEd's
legal requirement to remit collections of nuclear decommissioning costs from
customers to Generation resulting from the restructuring (see Note 5 -
Regulatory Issues). These liabilities to Generation were included in Current
Liabilities and Deferred Credits and Other Liabilities, respectively, on ComEd's
Consolidated Balance Sheets.
In consideration for the net assets transferred as part of the
restructuring (see Note 2 - Corporate Restructuring), ComEd had a note payable
to affiliates of $450 million. This note payable was repaid during 2001.
Interest expense paid on the outstanding balance of the note payable, excluding
the portion related to the nuclear decommissioning liability discussed above,
was $10 million for the year ended December 31, 2001.
ComEd paid common stock dividends to Exelon of $483 million in 2001.
In connection with the transfer of the generating assets in the
corporate restructuring, ComEd entered into a PPA with Generation. See Note 2 -
Corporate Restructuring. Intercompany power purchases pursuant to the PPA for
the year ended December 31, 2001 were $2,656 million. At December 31, 2001,
there was a $183 million payable to Generation for the PPA as well as other
services provided which is included in Current Liabilities on ComEd's
Consolidated Balance Sheets.
ComEd provides electric, transmission and other ancillary services to
Generation and Enterprises. These services were recorded in revenues and were
$81 million and $90 million for
117
the years ended December 31, 2001 and 2000, respectively. At December 31, 2001,
there was a $26 million receivable from Generation for services provided which
is included in Current Assets on ComEd's Consolidated Balance Sheets.
Effective January 1, 2001, upon the corporate restructuring, ComEd
receives a variety of corporate support services from BSC, including legal,
human resources, financial and information technology services. Such services,
provided at cost including applicable overhead, were $134 million for the year
ended December 31, 2001, of which $128 million was included in Operating and
Maintenance (O&M) expense on ComEd's Consolidated Statements of Income and $6
million was capitalized. At December 31, 2001, there was a $14 million payable
to BSC for services provided which is included in Current Liabilities on ComEd's
Consolidated Balance Sheets.
ComEd receives transmission related services under contracts with
InfraSource, Inc, formerly Exelon Infrastructure Services, Inc. Such services,
totaling $26 million, were capitalized in 2001.
In 2001, ComEd contracted with Unicom Mechanical Services Inc. to
provide energy conservation services to ComEd customers. The costs were $20
million for the year ended December 31, 2001, and were included in O&M expense
on ComEd's Consolidated Statements of Income.
In order to administer payment processing, ComEd processes certain
invoice payments on behalf of Generation and BSC. Receivables at December 31,
2001 from Generation and BSC for such service totaled $21 million and $19
million, respectively, and were included in Current Assets on ComEd's
Consolidated Balance Sheets. Interest income earned on such outstanding
receivables from Generation and BSC was $9 million and $1 million, respectively,
for the year ended December 31, 2001.
18. Quarterly Data (Unaudited)
The data shown below include all adjustments which ComEd considers necessary for
a fair presentation of such amounts:
Operating Operating Income Before Net
Revenues Income Extraordinary Items Income
--------------- ------------- ------------------- --------------
Quarter ended 2001 2000 2001 2000 2001 2000 2001 2000
- ------------- ---- ---- ---- ---- ---- ---- ---- ----
March 31 $1,446 $1,563 $380 $268 $146 $209 $146 $206
June 30 $1,530 $1,711 $459 $366 $182 $178 $182 $177
September 30 $1,919 $2,093 $440 $366 $178 $197 $178 $197
December 31 $1,311 $1,645 $315 $386 $101 $152 $101 $152
------ ------ ---- ---- ---- ---- ---- ----
19. Subsequent Event
On March 13, 2002, ComEd issued $400 million of 6.15% First Mortgage Bonds, due
March 15, 2012. On March 21, 2002, ComEd redeemed $200 million of 8.625% First
Mortgage Bonds at the redemption price of 103.84% of the principal amount plus
accrued interest. These bonds had a maturity date of February 1, 2022. The $400
million bond issuance was a replacement of the $200 million bonds early retired
on March 21, 2002 and the $196 million 9.875% First Mortgage Bonds which were
early retired in November, 2001.
118
PECO
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
of PECO Energy Company:
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(3)(i) present fairly, in all material respects, the
financial position of PECO Energy Company and Subsidiary Companies (PECO) at
December 31, 2001 and 2000, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2001 in
conformity with accounting principles generally accepted in the United States of
America. In addition, in our opinion, the financial statement schedule listed in
the index appearing under Item 14(a)(3)(ii) presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements. These financial statements and
financial statement schedule are the responsibility of PECO's management; our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
As discussed in Note 2, as part of a corporate restructuring undertaken on
January 1, 2001 by Exelon Corporation, the parent company of PECO, certain of
PECO's operations, assets and liabilities, including those related to power
generation and enterprises, were transferred to affiliated companies of PECO.
As discussed in Note 5 to the consolidated financial statements, PECO changed
its method of accounting for nuclear outage costs in 2000. As discussed in Note
1 to the consolidated financial statements, PECO changed its method of
accounting for derivative instruments and hedging activities effective January
1, 2001.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
January 29, 2002
119
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31,
--------------------------------
(in millions) 2001 2000 1999
- ------------- ---- ---- ----
OPERATING REVENUES
Operating Revenues $ 3,953 $ 5,950 $ 5,478
Operating Revenues from Affiliates 12 -- --
Total Operating Revenues 3,965 5,950 5,478
OPERATING EXPENSES
Fuel and Purchased Power 640 2,127 2,152
Purchased Power from Affiliates 1,162 -- --
Operating and Maintenance 527 1,791 1,454
Operating and Maintenance from Affiliates 60 -- --
Merger-Related Costs -- 248 --
Depreciation and Amortization 416 325 237
Taxes Other Than Income 161 237 262
-------- ------- --------
Total Operating Expenses 2,966 4,728 4,105
-------- ------- --------
OPERATING INCOME 999 1,222 1,373
-------- ------- --------
OTHER INCOME AND DEDUCTIONS
Interest Expense (405) (457) (396)
Interest Expense from Affiliates (8) -- --
Company-Obligated Mandatorily Redeemable Preferred
Securities of a Partnership, which holds Solely
Subordinated Debentures of the Company (10) (8) (21)
Equity in Earnings (Losses) of Unconsolidated Affiliates -- (41) (38)
Interest Income from Affiliates 10 -- --
Other, Net 36 41 59
-------- ------- --------
Total Other Income and Deductions (377) (465) (396)
-------- ------- --------
INCOME BEFORE INCOME TAXES, EXTRAORDINARY ITEMS AND
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE 622 757 977
INCOME TAXES 197 270 358
-------- ------- --------
INCOME BEFORE EXTRAORDINARY ITEMS AND CUMULATIVE
EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE 425 487 619
EXTRAORDINARY ITEMS (NET OF INCOME TAXES OF $2,
AND $25 FOR 2000, AND 1999, RESPECTIVELY) -- (4) (37)
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING
PRINCIPLE (NET OF INCOME TAXES OF $16) -- 24 --
-------- ------- --------
NET INCOME 425 507 582
PREFERRED STOCK DIVIDENDS 10 10 12
-------- ------- --------
NET INCOME ON COMMON STOCK $ 415 $ 497 $ 570
======== ======= ========
See Notes to Consolidated Financial Statements
120
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
-----------------------------------
(in millions) 2001 2000 1999
- ------------- ---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 425 $ 507 $ 582
Adjustments to reconcile Net Income to Net
Cash Flows provided by Operating Activities:
Depreciation and Amortization 416 437 358
Extraordinary Items (net of income taxes) -- 4 37
Cumulative Effect of a Change in Accounting
Principle (net of income taxes) -- (24) --
Provision for Uncollectible Accounts 69 68 59
Deferred Income Taxes (66) 103 (7)
Merger-Related Costs -- 248 --
Deferred Energy Costs 29 (79) 23
Equity in (Earnings) Losses of Unconsolidated Affiliates -- 41 38
Other Operating Activities 79 (76) (20)
Changes in Working Capital:
Accounts Receivable (54) (264) (159)
Repurchase of Accounts Receivable -- (50) (150)
Inventories (15) (45) (43)
Accounts Payable, Accrued Expenses & Other
Current Liabilities (133) (85) 189
Change in Receivables and Payables to Affiliates, net 73 -- --
Other Current Assets 5 (29) (12)
----------- ---------- ---------
NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES 828 756 895
----------- ---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in Plant (264) (549) (491)
InfraSource, Inc.Acquisitions -- (245) (222)
Investments in and Advances to Joint Ventures -- -- (118)
Proceeds from Nuclear Decommissioning Trust Funds -- 74 69
Investment in Nuclear Decommissioning Trust Funds -- (100) (95)
Other Investing Activities 29 (74) (29)
----------- ---------- ---------
NET CASH FLOWS USED IN INVESTING ACTIVITIES (235) (894) (886)
----------- ---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of Long-Term Debt, net of issuance costs 1,055 1,021 4,170
Common Stock Repurchases -- (496) (1,705)
Retirement of Long-Term Debt (1,416) (557) (1,343)
Change in Receivable and Payable to Affiliates 25 400 --
Change in Notes Payable (60) -- (388)
Redemption of COMRPS -- -- (221)
Redemptions of Mandatorily Redeemable Preferred Stock (18) (19) (37)
Change in Restricted Cash (69) (80) (174)
Dividends on Preferred and Common Stock (352) (167) (208)
Proceeds from Employee Stock Plans -- 47 19
Capital Lease Payments -- -- (139)
Contribution from Parent 225 -- --
Proceeds on the Settlement of Interest Rate Swap Agreements 31 -- --
Other Financing Activities -- (16) 23
----------- ---------- ---------
NET CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES (579) 133 (3)
----------- ---------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS 14 (5) 6
Cash Transferred in Restructuring (31) -- --
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 49 54 48
----------- ---------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 32 $ 49 $ 54
=========== ========== =========
See Notes to Consolidated Financial Statements
121
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
at December 31,
---------------------
(in millions) 2001 2000
- ------------- ---- ----
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 32 $ 49
Restricted Cash 323 254
Accounts Receivable, net
Customer 286 774
Other 33 250
Inventories, at average cost
Fossil Fuel 72 135
Materials and Supplies 7 122
Receivable from Affiliates 8 --
Other 59 195
------- --------
Total Current Assets 820 1,779
------- --------
PROPERTY, PLANT AND EQUIPMENT, NET 4,047 5,158
DEFERRED DEBITS AND OTHER ASSETS
Regulatory Assets 5,756 6,026
Nuclear Decommissioning Trust Funds -- 440
Investments 24 847
Goodwill, net -- 326
Pension Asset 13 --
Other 85 200
------- --------
Total Deferred Debits and Other Assets 5,878 7,839
------- --------
TOTAL ASSETS $10,745 $ 14,776
======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes Payable $ 101 $ 163
Payables to Affiliates 194 1,096
Long-Term Debt Due Within One Year 548 553
Accounts Payable 54 403
Accrued Expenses 397 637
Deferred Income Taxes 27 27
Other 21 95
------- --------
Total Current Liabilities 1,342 2,974
------- --------
LONG-TERM DEBT 5,438 6,002
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred Income Taxes 2,938 2,532
Unamortized Investment Tax Credits 27 271
Pension Obligations -- 129
Non-Pension Postretirement Benefits Obligation 239 501
Payables to Affiliates 44 --
Other 110 427
------- --------
Total Deferred Credits and Other Liabilities 3,358 3,860
------- --------
COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES
OF A PARTNERSHIP, WHICH HOLDS SOLELY SUBORDINATED DEBENTURES OF THE COMPANY 128 128
MANDATORILY REDEEMABLE PREFERRED STOCK 19 37
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common Stock 1,912 1,442
Receivable from Parent (1,878) --
Preferred Stock 137 137
Retained Earnings 270 197
Accumulated Other Comprehensive Income (Loss) 19 (1)
------- --------
Total Shareholders' Equity 460 1,775
------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $10,745 $ 14,776
======= ========
See Notes to Consolidated Financial Statements
122
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Accumulated
Receivable Other Total
Common Preferred from Deferred Retained Comprehensive Treasury Shareholders'
(in millions) Stock Stock Parent Compensation Earnings Income Stock Equity
- ------------- ----- ----- ------ ------------ -------- ------ ----- ------
BALANCE, DECEMBER 31, 1998 $ 3,558 $ 137 $ -- $ -- $ (501) $ -- $ -- $ 3,194
Net Income -- -- -- -- 582 -- -- 582
Long-Term Incentive Plan 19 -- -- (5) 15 -- -- 29
Deferred Compensation -- -- -- 2 -- -- -- 2
Common Stock Dividends -- -- -- -- (196) -- -- (196)
Preferred Stock Dividends -- -- -- -- (12) -- -- (12)
Common Stock Repurchases -- -- -- -- 12 -- (1,705) 1,693)
Other Comprehensive Income,
net of income taxes of $3 -- -- -- -- -- 4 -- 4
------- ------- ----- ----- ------- -------- --------- -------
BALANCE, DECEMBER 31, 1999 3,577 137 -- (3) (100) 4 (1,705) 1,910
Net Income -- -- -- -- 507 -- -- 507
Long-Term Incentive Plan 47 -- -- (9) 7 -- 7 52
Deferred Compensation -- -- -- 5 -- -- -- 5
Common Stock Dividends -- -- -- -- (157) -- -- 157)
Preferred Stock Dividends -- -- -- -- (10) -- -- (10)
Unicom Merger Consideration -- -- -- -- (45) -- -- (45)
Common Stock Repurchases -- -- -- -- (5) -- (496) (501)
Stock Option Exercises -- -- -- -- -- -- 19 19
Cancellation of Treasury Shares (2,175) -- -- -- -- -- 2,175 --
Other Comprehensive Income,
net of income taxes of $(3) -- -- -- -- -- (5) -- (5)
Reorganization Pursuant to Share
Exchange (7) -- -- 7 -- -- -- --
------- ------- ----- ----- ------- -------- --------- -------
BALANCE, DECEMBER 31, 2000 1,442 137 -- -- 197 (1) -- 1,775
Net Income -- -- -- -- 425 -- -- 425
Common Stock Dividends -- -- -- -- (342) -- -- (342)
Preferred Stock Dividends -- -- -- -- (10) -- -- (10)
Receivable from Parent 1,983 -- (1,983) -- -- -- -- --
Repayment of Receivable from
Parent -- -- 105 -- -- -- -- 105
Stock Option Exercises (26) -- -- -- -- -- -- (26)
Capital Contribution from Parent 121 -- -- -- -- -- -- 121
Net Assets Transferred in
Restructuring (1,608) -- -- -- -- -- -- (1,608)
Other Comprehensive Income,
net of income taxes of $16 -- -- -- -- -- 20 -- 20
------- ------- ----- ----- ------- -------- --------- -------
BALANCE, DECEMBER 31, 2001 $ 1,912 $ 137 $(1,878) $ -- $ 270 $ 19 $ -- $ 460
======= ======= ======= ===== ======= ====== ========= =======
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Years Ended December 31,
--------------------------------
(in millions) 2001 2000 1999
- ------------- ---- ---- ----
NET INCOME $ 425 $ 507 $ 582
OTHER COMPREHENSIVE INCOME
SFAS 133 Transition Adjustment, net of income taxes of $29 $ 40 $ -- $ --
Cash Flow Hedge Fair Value Adjustment, net of income taxes of $(13) (20) -- --
Unrealized Gain (Loss) on Marketable
Securities, net of income taxes of $(2) and $2 for 2000 and
1999, respectively -- (5) 4
-------- --------- --------
Total Other Comprehensive Income 20 (5) 4
-------- --------- --------
Total Comprehensive Income $ 445 $ 502 $ 586
======== ========= ========
See Notes to Consolidated Financial Statements
123
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share data unless otherwise noted)
1. SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS Incorporated in Pennsylvania in 1929, PECO
Energy Company (PECO) is engaged principally in the production, purchase,
transmission, distribution and sale of electricity to residential, commercial,
industrial and wholesale customers and the distribution and sale of natural gas
to residential, commercial and industrial customers. Pursuant to the
Pennsylvania Electricity Generation Customer Choice and Competition Act
(Competition Act), the Commonwealth of Pennsylvania has required the unbundling
of retail electric services in Pennsylvania into separate generation,
transmission and distribution services with open retail competition for
generation services. Since the commencement of deregulation in 1999, PECO serves
as the local distribution company providing electric distribution services in
its franchised service territory in southeastern Pennsylvania and bundled
electric service to customers who do not choose an alternate electric generation
supplier.
PECO is a wholly owned subsidiary of Exelon Corporation (Exelon) (see
Note 3 - Merger). During January 2001, Exelon undertook a corporate
restructuring to separate PECO's generation and other competitive businesses
from its regulated energy delivery business. As part of the restructuring, the
non-regulated operations and related assets and liabilities of PECO,
representing the generation and enterprises business segments were transferred
to separate subsidiaries of Exelon. As a result, beginning January 2001, the
operations of PECO consist of its retail electricity distribution and
transmission business in southeastern Pennsylvania and its natural gas
distribution business located in the Pennsylvania counties surrounding the City
of Philadelphia.
As a result of the corporate restructuring, certain risks and
commitments and the financial condition and results of operations of PECO have
changed significantly. Additionally as a result of the restructuring, PECO is no
longer subject to the risks associated with nuclear insurance, decommissioning,
spent fuel disposal and energy commitments, other than its purchase power
agreement with Exelon Generation Company, LLC (Generation). See Note 19 -
Segment Information for additional financial information.
Prior to the corporate restructuring effective January 2001, PECO also
engaged in the wholesale marketing of electricity on a national basis. Through
its Exelon Energy division, PECO was a competitive generation supplier offering
competitive energy supply to customers throughout Pennsylvania. PECO's
infrastructure services subsidiary, InfraSource, Inc. (InfraSource), formerly
Exelon Infrastructure Services, Inc., provided utility infrastructure services
to customers in several regions of the United States. PECO owned a 50% interest
in AmerGen Energy Company, LLC (AmerGen), a joint venture with British Energy,
Inc., a wholly-owned subsidiary of British Energy plc (British Energy), to
acquire and operate nuclear generating facilities. PECO also participated in
joint ventures which provide communications services in the Philadelphia
metropolitan region. As a result of the corporate restructuring effective
January 1, 2001, these operations were separated from the regulated energy
delivery business. See Note 2 - Corporate Restructuring.
BASIS OF PRESENTATION The consolidated financial statements of PECO include the
accounts of its majority-owned subsidiaries after the elimination of
intercompany transactions. In 2000 and 1999, PECO generally accounted for its
20% to 50% owned investments and joint ventures, in which it exerts significant
influence, under the equity method of accounting. In 2000 and 1999, PECO
consolidated its proportionate interest in its jointly owned electric utility
plants. PECO accounts for its less than 20% owned investments under the cost
method of accounting. Accounting policies for regulated operations are in
accordance with those prescribed by the
124
regulatory authorities having jurisdiction, principally the Pennsylvania Public
Utility Commission (PUC), the Federal Energy Regulatory Commission (FERC) and
the Securities and Exchange Commission (SEC) under the Public Utility Holding
Company Act of 1935 (PUHCA).
ACCOUNTING FOR THE EFFECTS OF REGULATION PECO accounts for all of its regulated
electric and gas operations in accordance with the Financial Accounting
Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No.
71, "Accounting for the Effects of Certain Types of Regulation," (SFAS No. 71)
requiring PECO to record in its financial statements the effects of the rate
regulation. Use of SFAS No. 71 is applicable to the utility operations of PECO
that meet the following criteria: (1) third-party regulation of rates; (2)
cost-based rates; and (3) a reasonable assumption that all costs will be
recoverable from customers through rates. PECO believes that it is probable that
currently recorded regulatory assets will be recovered. If a separable portion
of PECO's business no longer meets the provisions of SFAS No. 71, PECO is
required to eliminate the financial statement effects of regulation for that
portion.
USE OF ESTIMATES The preparation of financial statements in conformity with
generally accepted accounting principles (GAAP) requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Significant estimates have been made in the accounting for unbilled revenue,
derivatives, environmental costs, retirement benefit costs and prior to the
corporate restructuring, nuclear decommissioning liabilities.
REVENUES Operating revenues are generally recorded as service is rendered or
energy is delivered to customers. At the end of each month, PECO accrues an
estimate for the unbilled amount of energy delivered or services provided to its
electric and gas customers. In 2000 and 1999, PECO recognized contract revenues
and profits on certain long-term fixed-price contracts from its services
businesses under the percentage-of-completion method of accounting based on
costs incurred as a percentage of estimated total costs of individual contracts.
PURCHASED GAS ADJUSTMENT CLAUSE PECO's natural gas rates are subject to a fuel
adjustment clause designed to recover or refund the difference between the
actual cost of purchased gas and the amount included in base rates. Differences
between the amounts billed to customers and the actual costs recoverable are
deferred and recovered or refunded in future periods by means of prospective
quarterly adjustments to rates.
NUCLEAR FUEL In 2000 and 1999, the cost of nuclear fuel was capitalized and
charged to fuel expense using the unit of production method. Estimated costs of
nuclear fuel storage and disposal at operating plants were charged to fuel
expense as the related fuel was consumed.
125
DEPRECIATION, AMORTIZATION AND DECOMMISSIONING Depreciation is provided over the
estimated service lives of property, plant and equipment on a straight line
basis. Annual depreciation provisions for financial reporting purposes,
expressed as a percentage of average service life for each asset category are
presented below:
Asset Category 2001 2000 1999
- -------------- ---- ---- ----
Electric-Transmission and Distribution 2.13% 1.82% 1.83%
Electric-Generation -- 5.15% 5.12%
Gas 2.34% 2.39% 2.36%
Common - Gas and Electric 6.26% 3.60% 4.45%
Other Property and Equipment 0.60% 7.82% 8.61%
Amortization of regulatory assets is provided over the recovery period as
specified in the related regulatory agreement. In 2000 and 1999, goodwill
associated with acquisitions was amortized over periods from 10 to 20 years.
Accumulated amortization of goodwill was $35 million and $1 million at December
31, 2000 and 1999, respectively. Due to the corporate restructuring, which was
effective January 2001, the Goodwill on PECO's Consolidated Balance Sheets was
transferred to Exelon Enterprises Company, LLC (Enterprises).
CAPITALIZED INTEREST Allowance for Funds Used During Construction (AFUDC) is the
cost, during the period of construction, of debt and equity funds used to
finance construction projects for regulated operations. AFUDC of $2 million, $2
million and $4 million in 2001, 2000 and 1999, respectively, was recorded as a
charge to construction work in progress and as a non-cash credit to AFUDC which
is included in other income and deductions. The rates used for capitalizing
AFUDC are computed under a method prescribed by regulatory authorities.
PECO uses SFAS No. 34, "Capitalizing Interest Costs," to calculate the
costs during construction of debt funds used to finance its non-regulated
construction projects. PECO did not record any capitalized interest in 2001, but
did record capitalized interest of $2 million and $6 million in 2000 and 1999,
respectively.
INCOME TAXES Deferred Federal and state income taxes are provided on all
significant temporary differences between book bases and tax bases of assets and
liabilities, transactions that reflect taxable income in a year different from
book income and tax carryforwards. Investment tax credits previously utilized
for income tax purposes have been deferred on the Consolidated Balance Sheets
and are recognized in book income over the life of the related property. PECO
and its subsidiaries file a consolidated Federal income tax return with Exelon.
Current and deferred income taxes of the consolidated group are allocated to
PECO based on the separate return method.
GAINS AND LOSSES ON REACQUIRED DEBT Recoverable gains and losses on reacquired
debt related to regulated operations are deferred and amortized to interest
expense over the period consistent with rate recovery for ratemaking purposes.
In 2000 and 1999, prior to the corporate restructuring, gains and losses on
reacquired debt were recognized in PECO's Consolidated Statements of Income as
incurred.
COMPREHENSIVE INCOME Comprehensive income includes all changes in equity during
a period except those resulting from investments by and distributions to
shareholders. Comprehensive Income is reflected in the Consolidated Statements
of Comprehensive Income.
126
CASH AND CASH EQUIVALENTS PECO considers all temporary cash investments
purchased with an original maturity of three months or less to be cash
equivalents.
RESTRICTED CASH Restricted cash reflects unused cash proceeds from the issuance
of the transition bonds and escrowed cash to be applied to the principal and
interest payment on the transition bonds.
MARKETABLE SECURITIES Marketable securities are classified as available-for-sale
securities and are reported at fair value, with the unrealized gains and losses,
net of tax, reported in other comprehensive income. Prior to the corporate
restructuring in which PECO's nuclear generating stations were transferred to
Generation (See Note 2 - Corporate Restructuring), unrealized gains and losses
on marketable securities held in the nuclear decommissioning trust funds were
reported in accumulated depreciation. At December 31, 2001 and 2000, PECO had no
held-to-maturity or trading securities.
PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is recorded at cost.
PECO evaluates the carrying value of property, plant and equipment and other
long-term assets based upon current and anticipated undiscounted cash flows, and
recognizes an impairment when it is probable that such estimated cash flows will
be less than the carrying value of the asset. Measurement of the amount of
impairment, if any, is based upon the difference between carrying value and fair
value. The cost of maintenance, repairs and minor replacements of property are
charged to maintenance expense as incurred.
Upon retirement, the cost of regulated property plus removal costs less
salvage value, are charged to accumulated depreciation by the regulated
subsidiaries in accordance with regulatory practices. For unregulated property,
the cost and accumulated depreciation of property, plant and equipment retired
or otherwise disposed of are removed from the related accounts and included in
the determination of the gain or loss on disposition.
CAPITALIZED SOFTWARE COSTS Costs incurred during the application development
stage of software projects for software which is developed or obtained for
internal use are capitalized. At December 31, 2001 and 2000, capitalized
software costs totaled $107 million and $131 million, respectively, net of $31
million and $49 million accumulated amortization, respectively. Such capitalized
amounts are amortized ratably over the expected lives of the projects when they
become operational, not to exceed ten years.
DERIVATIVE FINANCIAL INSTRUMENTS PECO accounts for derivative financial
instruments under SFAS No. 133 "Accounting for Derivatives and Hedging
Activities" (SFAS No. 133). Under the provisions of SFAS No. 133, all
derivatives are recognized on the balance sheet at their fair value unless they
qualify for a normal purchases and normal sales exception. Changes in the fair
value of the derivative financial instruments are recognized in earnings unless
specific hedge accounting criteria are met. A derivative financial instrument
can be designated as a hedge of the fair value of a recognized asset or
liability or of an unrecognized firm commitment (fair value hedge), or a hedge
of a forecasted transaction or the variability of cash flows to be received or
paid related to a recognized asset or liability (cash flow hedge). Changes in
the fair value of a derivative that is highly effective as, and is designated
and qualifies as, a fair value hedge, along with the gain or loss on the hedged
asset or liability that is attributable to the hedged risk, are recorded in
earnings. Changes in the fair value of a derivative that is highly effective as,
and is designated as and qualifies as a cash flow hedge are recorded in other
comprehensive income, until earnings are affected by the variability of cash
flows being hedged.
In connection with Exelon's Risk Management Policy (RMP), PECO enters
into derivatives to manage its exposure to fluctuation in interest rates related
to its variable rate debt
127
instruments, changes in interest rates related to planned future debt issuances
prior to their actual issuance and changes in the fair value of outstanding debt
which is planned for early retirement.
For 2000 and 1999, prior to the corporate restructuring, PECO utilized
derivatives to manage the utilization of its available generating capability and
provisions of wholesale energy to its affiliates. PECO also utilized energy
option contracts and energy financial swap arrangements to limit the market
price risk associated with forward energy commodity contracts. Prior to the
adoption of SFAS No. 133, PECO applied hedge accounting only if the derivative
reduced the risk of the underlying hedged item and was designated at the
inception of the hedge, with respect to the hedged item. PECO recognized any
gains or losses on these derivatives when the underlying physical transaction
affected earnings.
NEW ACCOUNTING PRONOUNCEMENTS In 2001, the FASB issued SFAS No. 141, "Business
Combinations" (SFAS No. 141), SFAS No. 142 "Goodwill and Other Intangible
Assets"(SFAS 142), SFAS No. 143, "Asset Retirement Obligations" (SFAS No. 143),
and SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" (SFAS No.144). SFAS No. 141 requires that all business combinations be
accounted for under the purchase method of accounting and establishes criteria
for the separate recognition of intangible assets acquired in business
combinations. SFAS No. 141 is effective for business combinations initiated
after June 30, 2001.
SFAS No. 142 establishes new accounting and reporting standards for
goodwill and intangible assets. SFAS No. 142 is effective as of January 1, 2002.
Under SFAS No. 142, effective January 1, 2002, goodwill recorded is no longer
subject to amortization. After January 1, 2002, goodwill will be subject to an
assessment for impairment using a two-step fair value based test, the first step
of which must be performed at least annually, or more frequently if events or
circumstances indicate that goodwill might be impaired. The first step compares
the fair value of a reporting unit to its carrying amount, including goodwill.
If the carrying amount of the reporting unit exceeds its fair value, the second
step is performed. The second step compares the carrying amount of the goodwill
to the fair value of the goodwill. If the fair value of goodwill is less than
the carrying amount, an impairment loss would be reported as a reduction to
goodwill and a charge to operating expense, except at the transition date, when
the loss would be reflected as a cumulative effect of a change in accounting
principle. As of December 31, 2001, PECO does not have any Goodwill reflected on
its Consolidated Balance Sheets. As a result of the corporate restructuring in
January 2001, the goodwill was transferred to Enterprises.
SFAS No. 143 provides accounting requirements for retirement
obligations associated with tangible long-lived assets. PECO expects to adopt
SFAS No. 143 on January 1, 2003. Retirement obligations associated with
long-lived assets included within the scope of SFAS No. 143 are those for which
there is a legal obligation to settle under existing or enacted law, statute,
written or oral contract or by legal construction under the doctrine of
promissory estoppel. PECO is in the process of evaluating the impact of SFAS No.
143 on its financial statements.
SFAS No. 144 establishes accounting and reporting standards for both
the impairment and disposal of long-lived assets. This statement is effective
for fiscal years beginning after December 15, 2001 and provisions of this
statement are generally applied prospectively. PECO is in the process of
evaluating the impact of SFAS No. 144 on its financial statements, and does not
expect the impact to be material.
RECLASSIFICATIONS Certain prior year amounts have been reclassified for
comparative purposes. The reclassifications did not affect net income.
2. CORPORATE RESTRUCTURING
During January 2001, Exelon undertook a restructuring to separate it's
generation and other competitive businesses from its regulated energy delivery
business. As part of the restructuring,
128
the non-regulated operations and related assets and liabilities of PECO,
representing PECO's generation and enterprises business segments, were
transferred to Generation and Enterprises, respectively. Additionally, certain
operations and assets and liabilities of PECO were transferred to Exelon
Business Services Company (BSC). As a result, effective January 1, 2001, the
operations of PECO consist of its retail electricity distribution and
transmission business in southeastern Pennsylvania, and its natural gas
distribution business in the Pennsylvania counties surrounding the City of
Philadelphia.
The corporate restructuring had the following effect on PECO's
Consolidated Balance Sheet:
Decrease in Assets:
Current Assets $(1,085)
Property, Plant and Equipment, net (1,212)
Investments (1,262)
Other Noncurrent Assets (431)
(Increase) Decrease in Liabilities:
Current Liabilities 1,540
Long-Term Debt 205
Deferred Income Taxes (441)
Other Noncurrent Liabilities 1,003
-------
Net Assets Transferred $(1,683)
=======
Consideration, based on the net book value of the net assets transferred, was as
follows:
Return of Capital $1,608
Note Receivable 75
------
$1,683
======
In connection with the transfer, PECO entered into a power purchase agreement
(PPA) with Generation. Under the terms of the PPA, PECO obtains the majority of
its electric supply from Generation through 2010. Also, under the terms of the
transfer, PECO assigned its rights and obligations under various PPAs and fuel
supply agreements to Generation. Generation supplies power to PECO from the
transferred generation assets, assigned PPAs and other market sources.
As a result of the corporate restructuring, certain risks and commitments
that have been disclosed in Note 18 - Commitments and Contingencies and the
future financial condition and results of operations will change significantly.
On a prospective basis, PECO will not be subject to the risks associated with
nuclear insurance, decommissioning, spent fuel disposal and energy commitments,
other than its purchase power agreement with Generation. See Note 19 - Segment
Information for additional financial information.
3. MERGER
On October 20, 2000, Exelon became the parent corporation of PECO and
Commonwealth Edison Company (ComEd) as a result of the completion of the
transactions contemplated by an Agreement and Plan of Exchange and Merger, as
amended (Merger Agreement), among PECO, Unicom Corporation (Unicom) and Exelon.
As a result of the share exchange, Exelon became the owner of all of the common
stock of PECO. Following the share exchange, pursuant to the Merger Agreement,
Unicom merged with and into Exelon (Merger). In the Merger, each share of the
outstanding common stock of Unicom was converted into 0.875 shares of common
stock of
129
Exelon plus $3.00 in cash. As a result of the Merger, Unicom ceased to exist and
its subsidiaries, including ComEd, became subsidiaries of Exelon.
MERGER-RELATED COSTS
Merger-related costs charged to expense in 2000 were $248 million, consisting of
$132 million of direct incremental costs and $116 million for PECO employee
costs. Direct incremental costs represent expenses directly associated with
completing the Merger, including professional fees, regulatory approval and
settlement costs, and settlement of compensation arrangements. Employee costs
represent estimated severance costs and pension and postretirement benefits
provided under Exelon's Merger Separation Plan (MSP) for eligible employees who
are expected to be involuntarily terminated by December 2002 due to integration
activities of the merged companies.
4. ACQUISITIONS
SITHE ENERGIES, INC. ACQUISITION On December 18, 2000, PECO acquired 49.9% of
the outstanding common stock of Sithe Energies, Inc. (Sithe) through an
intercompany transaction with Exelon for $696 million in cash and $8 million of
acquisition costs. The transaction includes an option to purchase the remaining
common stock outstanding exercisable between December 2002 and December 2005, at
a price to be determined based on prevailing market conditions.
Sithe is an independent power generator in North America utilizing
primarily fossil and hydro generation. The purchase involves approximately
10,000 megawatts (MW) of generation consisting of 3,800 MW of existing merchant
generation, 2,500 MW under construction, and another 3,700 MW of generation in
various stages of development, as well as Sithe's domestic marketing and
development businesses. The generation assets are located primarily in
Massachusetts and New York, but also include plants in Pennsylvania, California,
Colorado and Idaho, as well as Canada and Mexico.
In conjunction with the corporate restructuring in January 2001, PECO
transferred its investment in Sithe and the purchase option to Generation.
INFRASOURCE, INC. ACQUISITIONS In 2000, InfraSource, Inc. (InfraSource), an
unregulated majority owned subsidiary of PECO, formerly Exelon Infrastructure
Services, Inc., acquired the stock or assets of seven utility service
contracting companies for an aggregate purchase price of approximately $245
million, net of cash acquired of $9 million, including InfraSource common stock
valued at $14 million. The acquisitions were accounted for using the purchase
method of accounting. The initial estimate of the excess of purchase price over
the fair value of net assets acquired (goodwill) was approximately $216 million.
The allocation of purchase price to the fair value of assets acquired
and liabilities assumed in these acquisitions is as follows:
Current Assets (net of cash acquired) $ 63
Property, Plant and Equipment 17
Goodwill 216
Current Liabilities (51)
-----
Total $ 245
=====
At December 31, 2000 current assets included $70 million of costs and earnings
in excess of billings on uncompleted contracts and current liabilities includes
$23 million of billings and earnings in excess of costs on uncompleted
contracts, related to InfraSource.
130
In conjunction with the corporate restructuring in January 2001, PECO
transferred InfraSource to Enterprises.
AMERGEN ENERGY COMPANY, LLC In August 2000, AmerGen completed the purchase of
Oyster Creek Nuclear Generating Facility (Oyster Creek) from GPU, Inc. (GPU) for
$10 million. Under the terms of the purchase agreement, GPU agreed to fund
outage costs not to exceed $89 million, including the cost of fuel, for a
refueling outage that occurred in 2000. AmerGen is repaying these costs to GPU
in nine equal annual installments through 2009. In addition, AmerGen assumed
full responsibility for the ultimate decommissioning of Oyster Creek. At the
closing of the sale, GPU provided funding for the decommissioning trust of $440
million. In conjunction with this acquisition, AmerGen has received a fully
funded decommissioning trust fund which has been computed assuming the
anticipated costs to appropriately decommission Oyster Creek discounted to net
present value using the NRC's mandated rate of 2%. AmerGen believes that the
amount of the trust fund and investment earnings thereon will be sufficient to
meet its decommissioning obligation. GPU is purchasing the electricity generated
by Oyster Creek pursuant to a three-year PPA.
In conjunction with the corporate restructuring in January 2001, PECO
transferred its investment in AmerGen to Generation.
5. ACCOUNTING CHANGES
On January 1, 2001, PECO recognized a deferred non-cash gain of $40 million (net
of income taxes of $29 million), in accumulated other comprehensive income, a
component of shareholders' equity, to reflect the adoption of SFAS No. 133, as
amended.
During the fourth quarter of 2000, as a result of the synchronization
of accounting policies with Unicom in connection with the Merger, PECO changed
its method of accounting for nuclear outage costs to record such costs as
incurred. Previously, PECO accrued these costs over the operating unit cycle. As
a result of the change in accounting method for nuclear outage costs, PECO
recorded income of $24 million (net of income taxes of $16 million). The change
is reported as a Cumulative Effect of a Change in Accounting Principle on the
Consolidated Statements of Income as of December 31, 2000, representing the
balance of the nuclear outage cost reserve at January 1, 2000.
6. REGULATORY ISSUES
In 2001, the phased process to implement competition in the electric industry
continued as mandated by the requirements of the PUC's Final Restructuring
Order.
Customer Choice The PUC's Final Restructuring Order provided for the phase-in
of customer choice of electric generation supplier (EGS) for all customers by
January 1, 2000. The Final Restructuring Order also established market share
thresholds to ensure that a minimum number of residential and commercial
customers choose an EGS or a PECO affiliate. If less than 35% and 50% of
residential and commercial customers have chosen an EGS, including residential
customers assigned to an EGS as a provider of last resort default supplier, by
January 1, 2001 and January 1, 2003, respectively, the number of customers
sufficient to meet the necessary threshold levels shall be randomly selected and
assigned to an EGS through a PUC-determined process. On January 1, 2001, the 35%
threshold was met for all three customer classes as a result of agreements
assigning customers to New Power Company and Green Mountain Energy Company as
providers of last resort default service. During 2001, PECO experienced an
increase in the number of customers selecting or returning to PECO as their EGS
and at December 31, 2001, approximately 28% of PECO's residential load, 6% of
its small commercial and industrial load and 5% of its large commercial and
industrial load were purchasing generation from an
131
alternative generation supplier. Customers who purchase energy from an EGS
continue to pay a delivery charge.
Rate Reductions and Caps Under the Final Restructuring Order, retail electric
rates were capped at year-end 1996 levels (system-wide average of 9.96
cents/kilowatt hour (kWh)) through June 2005. The Final Restructuring Order
required PECO to reduce its retail electric rates by 8% from the 1996
system-wide average rate on January 1, 1999. This rate reduction decreased to 6%
on January 1, 2000 until January 1, 2001. The transmission and distribution rate
component was capped at a system-wide average rate of 2.98 cents/kWh through
June 30, 2005. Additionally, generation rate caps, defined as the sum of the
applicable transition charge and energy and capacity charge, remain in effect
through 2010.
On March 16, 2000, the PUC issued an order authorizing PECO to
securitize up to an additional $1 billion of its authorized stranded costs
recovery. In accordance with the terms of that order, PECO provided its retail
customers with rate reductions of $60 million for calendar year 2001 only.
Under a comprehensive settlement agreement in connection with achieving
regulatory approval of the Merger, PECO agreed to $200 million in aggregate rate
reductions for all customers in Pennsylvania over the period January 1, 2002
through 2005 and extended the rate caps on PECO's retail electric distribution
charges through December 31, 2006.
7. SUPPLEMENTAL FINANCIAL INFORMATION
SUPPLEMENTAL INCOME STATEMENT INFORMATION
For the Years Ended December 31,
--------------------------------
2001 2000 1999
---- ---- ----
TAXES OTHER THAN INCOME
Utility $ 135 $ 144 $ 155
Real estate 12 45 72
Payroll 12 27 28
Other 2 21 7
------ ----- ------
Total $ 161 $ 237 $ 262
====== ===== ======
OTHER, NET
Investment income $ 24 $ 50 $ 52
Gain (loss) on disposition of assets, net 6 (20) (1)
Settlement of power purchase agreement -- 6 --
AFUDC, equity and borrowed 2 2 4
Other income (expense) 4 3 4
------ ----- ------
Total $ 36 $ 41 $ 59
====== ===== ======
132
SUPPLEMENTAL CASH FLOW INFORMATION
For the Years Ended December 31,
--------------------------------
2001 2000 1999
---- ---- ----
Cash paid during the year:
Interest (net of amount capitalized) $ 416 $ 431 $ 350
Income taxes (net of refunds) $ 271 $ 261 $ 304
Non-cash investing and financing:
Contribution of Receivable from Parent $ 1,878 -- --
Net Assets Transferred as a
Result of Restructuring $ 1,608 -- --
Investment in Sithe -- $ 696 --
Issuance of InfraSource stock $ -- $ 14 $ 11
Depreciation and amortization:
Property, plant and equipment $ 135 $ 229 $ 207
Nuclear fuel -- 112 104
Regulatory assets 275 57 --
Decommissioning 6 29 29
Goodwill -- 10 1
Leased property -- -- 17
-------- ------- --------
Total Depreciation and Amortization $ 416 $ 437 $ 358
======== ======= ========
SUPPLEMENTAL BALANCE SHEET INFORMATION
at December 31,
---------------
2001 2000
---- ----
INVESTMENTS
Investment in Sithe $ -- $ 704
Energy services and other ventures -- 39
Communication ventures -- 35
Investment in AmerGen -- 44
Other Investments 24 25
------- --------
Total $ 24 $ 847
======= ========
REGULATORY ASSETS
Competitive transition charge $ 4,947 $ 5,218
Recoverable deferred income taxes (see Note 12) 675 661
Loss on reacquired debt 58 64
Compensated absences 5 5
Non-pension postretirement benefits 71 78
------- --------
Long-Term Regulatory Assets 5,756 6,026
Deferred energy costs (current asset) 56 86
------- --------
Total $ 5,812 $ 6,112
======= ========
At December 31, 2001 and 2000, the Competitive Transition Charge (CTC) includes
the unamortized balance of $4.5 billion and $4.8 billion, respectively, of
Intangible Transition Property (ITP) sold to PECO Energy Transition Trust
(PETT), a wholly owned subsidiary of PECO, in connection with the securitization
of PECO's stranded cost recovery. PETT financed its purchase of the ITP through
the issuance of transition bonds. See Note 11 - Long-Term Debt.
133
ITP represents the irrevocable right of PECO or its assignee to collect
non-bypassable charges from customers to recover stranded costs. The CTC
represents PECO's stranded costs that are recoverable through regulated rates.
The CTC is recoverable over a twelve-year period ending December 31, 2010 with a
return on the unamortized balance of 10.75%.
8. ACCOUNTS RECEIVABLE
Accounts receivable -- Customer at December 31, 2001 and 2000 included unbilled
operating revenues of $100 million and $180 million, respectively. The allowance
for uncollectible accounts at December 31, 2001 and 2000 was $110 million and
$131 million, respectively.
Accounts receivable -- Other at December 31, 2000 included demand notes
receivable from a communications joint venture in the amount of $153 million.
The receivable has been adjusted for PECO's share of this joint venture's
operating losses incurred in excess of its investment. The notes bear interest
at the Applicable Federal Rate, compounded semi-annually. The average interest
rate on the notes receivable was 6.22% at December 31, 2000. Interest income
related to the notes receivable was $10 million in 2000. In conjunction with the
corporate restructuring in January 2001, these demand notes were transferred to
Enterprises.
PECO is party to an agreement with a financial institution under which
it can sell or finance with limited recourse an undivided interest, adjusted
daily, in up to $225 million of designated accounts receivable until November
2005. At December 31, 2001, PECO had sold a $225 million interest in accounts
receivable, consisting of a $170 million interest in accounts receivable which
PECO accounted for as a sale under SFAS No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities - a Replacement
of FASB Statement No. 125," and a $55 million interest in special-agreement
accounts receivable which was accounted for as a long-term note payable. See
Note 11 - Long-Term Debt. PECO retains the servicing responsibility for these
receivables. The agreement requires PECO to maintain the $225 million interest,
which, if not met, requires PECO to deposit cash in order to satisfy such
requirements. At December 31, 2001 and 2000, PECO met this requirement and was
not required to make any cash deposits.
9. PROPERTY, PLANT, AND EQUIPMENT
A summary of property, plant and equipment by classification as of December 31,
2001 and 2000 is as follows:
Asset Category 2001 2000
- -------------- ---- ----
Electric-Transmission and Distribution $4,058 $3,836
Electric-Generation -- 2,086
Gas 1,281 1,181
Common 399 408
Nuclear Fuel -- 1,664
Construction Work in Progress 88 498
Leased Property -- 2
Other Property, Plant and Equipment 20 197
------ ------
Total Property, Plant and Equipment 5,846 9,872
Less Accumulated Depreciation 1,799 4,714
------ ------
Property, Plant and Equipment, net $4,047 $5,158
====== ======
Accumulated depreciation included accumulated amortization of nuclear fuel of
$1.4 billion, as well as the nuclear decommissioning liability for the nuclear
operating units of $406 million as of December 31, 2000.
134
The decrease in the net property, plant and equipment balance from the
prior year was primarily due to the corporate restructuring in which PECO's
generation and enterprise assets were transferred to separate subsidiaries of
Exelon (see Note 2 - Corporate Restructuring).
10. NOTES PAYABLE
2001 2000 1999
---- ---- ----
Average borrowings $ 3 $ 186 $ 242
Average interest rates, computed on daily basis 2.99% 6.62% 5.62%
Maximum borrowings outstanding $ 471 $ 500 $ 728
Average interest rates, at December 31 2.25% 7.18% 6.80%
PECO, along with Exelon, ComEd and Generation, is a party to a $1.5 billion
364-day unsecured revolving credit facility on December 12, 2001 with a group of
banks. PECO has a $300 million sublimit under this credit facility, which is
used principally to support PECOs commercial paper program. At December 31, 2001
and 2000, the amount of commercial paper outstanding was $101 million and $161
million, respectively. At December 31, 2001 and 2000, there were no borrowings
under this credit facility. Interest rates on borrowings under the credit
facility are based on the London Interbank Offering Rate as of the date of the
advance.
135
11. LONG-TERM DEBT
at December 31, 2001 at December 31,
-------------------- ---------------
Maturity
Rates Date 2001 2000
----------- --------- -------- --------
PETT Bonds Series 1999-A:
Fixed rates 5.63%-6.13% 2003-2007 (a) $ 2,577 $ 2,706
Floating rates 2.11%-2.18% 2003-2007 (a) 310 1,132
PETT Bonds Series 2000-A: 7.3%-7.65% 2002-2009 (a) 890 1,000
PETT Bonds Series 2001: 6.52% 2010 (a) 805 --
First and Refunding Mortgage Bonds (b) (c):
Fixed rates 5.95%-8.00% 2002-2022 1,027 1,148
Floating rates 1.35%-2.35% 2012 154 154
Notes payable 7.25% 2003-2004 -- 14
Pollution control notes:
Fixed rates 5.20%-5.30% 2021-2034 157 157
Floating rates 1.75% 2027 17 212
Notes payable - accounts receivable agreement 2.00% 2005 55 40
-------- --------
TOTAL LONG-TERM DEBT (d) 5,992 6,563
Unamortized debt discount and premium, net (6) (8)
Due within one year (548) (553)
LONG-TERM DEBT $ 5,438 $ 6,002
======== ========
(a) The maturity date represents the expected final payment date which is the
date when all principal and interest of the related class of transition
bonds is expected to be paid in full in accordance with the expected
amortization schedule for the applicable class. The date when all
principal and interest must be paid in full for the PETT Bonds Series
1999-A, 2000-A and 2001-A are 2003 through 2009, 2003 through 2010 and
2010, respectively. The current portion of transition bonds is based upon
the expected maturity date.
(b) Utility plant of PECO is subject to the lien of its mortgage indenture.
(c) Includes first mortgage bonds issued under the PECO mortgage indenture
securing pollution control notes.
(d) Long-term debt maturities in the period 2002 through 2006 and thereafter
are as follows:
2002 $ 548
2003 690
2004 318
2005 503
2006 500
Thereafter 3,433
------
Total $5,992
In 2001, PECO Energy Transition Trust (PETT), a Delaware business trust and a
wholly owned subsidiary of PECO, refinanced $805 million of floating rate Series
1999-A Transition Bonds through the issuance by PETT of fixed-rate transition
bonds (Series 2001-A Transition Bonds). Approximately 72% of Class A-3 and 70%
of the Class A-5 Series 1999-A Transition Bonds were redeemed. The Series 2001-A
Transition Bonds are non-callable, fixed-rate securities with an interest rate
of 6.52%. The Series 2001-A Transition Bonds have an expected final payment date
of September 1, 2010 and a termination date of December 31, 2010.
Also in 2001, PECO issued, through a private placement, $250 million of
its First and Refunding Mortgage Bonds, with an interest rate of 5.95% and a
maturity date of November 11, 2011. Proceeds from the first mortgage bonds were
used to repay a $250 million aggregate principal amount of PECO's First and
Refunding Mortgage Bonds having an interest rate of 5.625% and a maturity date
of November 1, 2001.
In 1999, PECO entered into treasury forwards associated with the
anticipated issuance of the Series 2000-A Transition Bonds. On May 2, 2000,
these instruments were settled with net
136
proceeds to the counterparties of $13 million which has been deferred and is
being amortized over the life of the Series 2000-A Transition Bonds as an
increase to interest expense.
In 1998, PECO entered into treasury forwards and forward-starting
interest rate swaps to manage interest rate exposure associated with the
anticipated issuance of the Series 1999-A Transition Bonds. On March 18, 1999,
these instruments were settled with net proceeds of $80 million to PECO which
were deferred and are being amortized over the life of the Series 1999-A
Transition Bonds as a reduction of interest expense.
In connection with the refinancing of a portion of the two floating
rate series of transition bonds in the first quarter of 2001, PECO settled $318
million of a forward-starting interest rate swap resulting in a $6 million gain
which is reflected in other income and deductions due to the transaction no
longer being probable. Also, in connection with the refinancing, PECO settled a
portion of the interest rate swaps and the remaining portion of the
forward-starting interest rate swaps resulting in gains of $25 million, which
were deferred and are being amortized over the expected remaining lives of the
related debt.
At December 31, 2001 and 2000, the aggregate unamortized net gain on
the settlement of PECO transactions was $55 million and $51 million,
respectively.
In 2000 and 1999, PECO incurred extraordinary charges aggregating $6
million ($4 million, net of tax) and $62 million ($37 million, net of tax),
respectively for prepayment premiums and the write-offs of unamortized deferred
financing costs associated with the early retirement of debt.
12. INCOME TAXES
Income tax expense (benefit) is comprised of the following components:
For the Year Ended December 31,
-----------------------------------------
2001 2000 1999
------ ------ ------
Included in operations:
Federal
Current $ 255 $ 181 $ 293
Deferred (49) 91 6
Investment tax credit, net (3) (15) (14)
State
Current 8 2 72
Deferred (14) 11 1
------ ------ ------
$ 197 $ 270 $ 358
====== ====== ======
Included in extraordinary item:
Federal
Current $ -- $ (2) $ (19)
State
Current -- -- (6)
------ ------ ------
$ -- $ (2) $ (25)
====== ====== ======
Included in cumulative effects of changes in
accounting principles:
Federal
Deferred $ -- $ 13 $ --
State
Deferred -- 3 --
------ ------ ------
$ -- $ 16 $ --
====== ====== ======
137
The effective income tax rate varies from the U.S. Federal statutory rate for
the years ended December 31 principally due to the following:
For the Year Ended December 31,
------------------------------------
2001 2000 1999
---- ---- ----
U.S. Federal statutory rate 35.0% 35.0% 35.0%
Increase (decrease) due to:
Plant basis differences (0.8) (0.8) (0.8)
State income taxes, net of Federal income tax benefit (0.6) 2.7 4.8
Amortization of investment tax credit (0.4) (1.9) (1.6)
Prior period income taxes (1.5) 0.5 (0.7)
Other, net -- 0.2 (0.1)
---- ---- ----
Effective income tax rate 31.7% 35.7% 36.6%
==== ==== ====
The tax effects of temporary differences giving rise to significant portions of
PECO's deferred tax assets and liabilities as of December 31, 2001 and 2000 are
presented below:
2001 2000
---- ----
Deferred tax liabilities:
Plant basis difference $ 2,990 $ 2,839
Deferred investment tax credit 27 271
Deferred debt refinancing costs 31 34
------- --------
Total deferred tax liabilities 3,048 3,144
------- --------
Deferred tax assets:
Deferred pension and postretirement obligations (12) (187)
Other, net (44) (127)
------- --------
Total deferred tax assets (56) (314)
------- --------
Deferred income taxes (net) on the balance sheet $ 2,992 $ 2,830
======= ========
In accordance with regulatory treatment of certain temporary differences, PECO
has recorded a regulatory asset for recoverable deferred income taxes of $675
million and $661 million at December 31, 2001 and 2000, respectively. These
recoverable deferred income taxes include the deferred tax effects associated
principally with liberalized depreciation accounted for in accordance with the
ratemaking policies of the PUC, as well as the revenue impacts thereon, and
assume continued recovery of these costs in future rates.
The Internal Revenue Service and certain state tax authorities are
currently auditing certain tax returns of PECO. The current audits are not
expected to have an adverse impact on financial condition or results of
operations of PECO.
13. RETIREMENT BENEFITS
PECO has adopted defined benefit pension plans and postretirement welfare
benefit plans sponsored by Exelon. Essentially all PECO employees are eligible
to participate in these plans. In 2001, PECO's former plans were consolidated
into the Exelon plans. Essentially all PECO employees, hired on or after January
1, 2001 are eligible to participate in newly established Exelon cash balance
pension plans. Employees who were active participants in the former PECO pension
plans on December 31, 2000 and remain employed by PECO on January 1, 2002, will
have the opportunity to continue to participate in the pension plan or to
transfer to the cash balance plan. Benefits under these pension plans generally
reflect each employee's compensation, years of service, and age at retirement.
Funding is based upon actuarially determined contributions that take into
account the amount deductible for income tax purposes
138
and the minimum contribution required under the Employee Retirement Income
Security Act of 1974, as amended. The following tables provide a reconciliation
of benefit obligations, plan assets, and funded status for PECO's proportionate
allocated interest in the plans.
Other
Pension Benefits Postretirement Benefits
--------------------- -----------------------
2001 2000 2001 2000
---- ---- ---- ----
Change in Benefit Obligation:
Net benefit obligation at beginning of year $ 2,230 $ 2,054 $ 922 $ 798
Service cost 11 24 9 18
Interest cost 84 158 43 66
Plan amendments 20 -- -- --
Actuarial (gain)loss 11 140 92 69
Curtailments/Settlements 2 (74) -- 4
Special accounting costs(benefit) (16) 96 (2) 11
Gross benefits paid (93) (168) (24) (44)
Corporate Restructuring Transfer (1,206) -- (499) --
-------- ------- --------- --------
Net benefit obligation at end of year $ 1,043 $ 2,230 $ 541 $ 922
======== ======= ========= ========
Change in Plan Assets:
Fair value of plan assets at beginning of year $ 3,005 $ 2,982 $ 263 $ 244
Actual return on plan assets (59) 190 (2) 8
Employer contributions 9 1 26 54
Plan participants' contributions -- -- -- 1
Gross benefits paid (93) (168) (24) (44)
Corporate Restructuring Transfer (1,625) -- (142) --
-------- ------- --------- --------
Fair value of plan assets at end of year $ 1,237 $ 3,005 $ 121 $ 263
======== ======= ========= ========
Funded status at end of year $ 194 $ 775 $ (420) $ (659)
Unrecognized net actuarial (gain)loss (225) (960) 132 36
Unrecognized prior service cost 51 77 -- --
Unrecognized net transition obligation (asset) (7) (21) 49 122
-------- ------- --------- --------
Net asset (liability) recognized at end of year $ 13 $ (129) $ (239) $ (501)
======== ======= ========= ========
Pension Benefits Other Postretirement Benefits
------------------------------- -----------------------------
2001 2000 1999 2001 2000 1999
---- ---- ---- ---- ---- ----
WEIGHTED-AVERAGE ASSUMPTIONS
AS OF DECEMBER 31,
Discount rate 7.35% 7.60% 8.00% 7.35% 7.60% 8.00%
Expected return on plan assets 9.50% 9.50% 9.50% 9.50% 8.00% 8.00%
Rate of compensation increase 4.00% 5.00% 5.00% 4.00% 4.30% 5.00%
Health care cost trend on
covered charges N/A N/A N/A 10.00% 7.00% 8.00%
decreasing decreasing decreasing
to ultimate to ultimate to ultimate
trend of trend of trend of
4.5% in 2008 5.0% in 2005 5.0% in 2006
139
Pension Benefits Other Postretirement Benefits
------------------------------- ------------------------------
2001 2000 1999 2001 2000 1999
---- ---- ---- ---- ---- ----
COMPONENTS OF NET PERIODIC
BENEFIT COST (BENEFIT):
Service cost $ 12 $ 25 $ 29 $ 10 $ 18 $ 19
Interest cost 84 158 154 43 66 57
Expected return on assets (131) (238) (222) (11) (18) (16)
Amortization of:
Transition obligation (asset) (2) (5) (4) 6 12 12
Prior service cost 4 7 5 -- -- --
Actuarial (gain) loss (13) (26) (8) -- -- --
Curtailment charge (credit) 1 (12) -- (5) 24 --
Settlement charge (credit) (1) (16) -- -- -- --
----- ------ ------ ---- ------ -----
Net periodic benefit cost (benefit) $ (46) $ (107) $ (46) $ 43 $ 102 $ 72
===== ====== ====== ==== ====== =====
Special accounting costs $ 16 $ 96 $ -- $ (2) $ 11 $ --
===== ====== ====== ==== ====== =====
SENSITIVITY OF RETIREE WELFARE RESULTS
Effect of a one percentage point increase in assumed health care cost trend
on total service and interest cost components $ 7
on postretirement benefit obligation $ 59
Effect of a one percentage point decrease in assumed health care cost trend
on total service and interest cost components $ (6)
on postretirement benefit obligation $ (50)
The decrease in the net benefit obligation and the fair value of plan assets in
2001 as compared to 2000 is due primarily to the corporate restructuring (See
Note 2 - Corporate Restructuring). Amounts of the obligation allocated to
affiliates in the restructuring were primarily based on the relative number of
active employees transferred to each affiliate.
Prior service cost is amortized on a straight-line basis over the
average remaining service period of employees expected to receive benefits under
the plans.
Special accounting costs of $16 million and $96 million in 2001 and
2000, respectively, represent accelerated separation and enhancement benefits
provided to PECO employees expected to be terminated as a result of the Merger.
PECO provides certain health care and life insurance benefits for retired
employees through plans sponsored by Exelon. Welfare benefits for active
employees are provided by several insurance policies or self-funded plans whose
premiums or contributions are based upon the benefits paid during the year.
PECO has savings plans for the majority of its employees. The plans
allow employees to contribute a portion of their pretax income in accordance
with specified guidelines. PECO matches a percentage of the employee
contribution up to certain limits. The cost of PECO's matching contribution to
the savings plans totaled $7 million, $11 million and $7 million in 2001, 2000,
and 1999, respectively.
140
14. PREFERRED AND PREFERENCE STOCK
At December 31, 2001 and 2000, Series Preference Stock of PECO, no par value,
consisted of 100,000,000 shares authorized, of which no shares were outstanding.
At December 31, 2001 and 2000, cumulative Preferred Stock of PECO, no par value,
consisted of 15,000,000 shares authorized and the amounts set forth below:
at December 31,
-----------------------
2001 2000 2001 2000
Current Redemption ---- ---- ---- ----
Price(a) Shares Outstanding Amount
-------- ------------------ ------
SERIES (WITHOUT MANDATORY REDEMPTION)
$4.68 $ 104.00 150,000 150,000 $ 15 $ 15
$4.40 112.50 274,720 274,720 27 27
$4.30 102.00 150,000 150,000 15 15
$3.80 106.00 300,000 300,000 30 30
$7.48 (b) 500,000 500,000 50 50
- ----- -------- --------- --------- ----- ------
1,374,720 1,374,720 137 137
SERIES (WITH MANDATORY REDEMPTION)
$6.12 (c) 185,400 370,800 19 37
- ----- -------- --------- --------- ----- ------
Total preferred stock 1,560,120 1,745,520 $ 156 $ 174
========= ========= ===== ======
(a) Redeemable, at the option of PECO, at the indicated dollar amounts per
share, plus accrued dividends.
(b) None of the shares of this series is subject to redemption prior to April
1, 2003.
(c) PECO made the annual sinking fund payments of $18.5 million on August 1,
2001 and August 2, 2000. The future sinking fund requirement in 2002 is
$18.5 million.
15. COMPANY - OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF A
PARTNERSHIP
At December 31, 2001 and 2000, PECO Energy Capital, L.P. (Partnership), a
Delaware limited partnership of which a wholly owned subsidiary of PECO is the
sole general partner, had outstanding Company-Obligated Mandatorily Redeemable
Preferred Securities of a Partnership (COMRPS) as set forth in the following
table:
Mandatory Distri- Liqui- at December 31,
Redemption bution dation 2001 2000 2001 2000
Date Rate Value Trust Securities Outstanding Amount
---------- ------ -------- ---------------------------- ------ ------
PECO Energy
Capital Trust II 2037 8.00% $ 25 2,000,000 2,000,000 $ 50 $ 50
PECO Energy
Capital Trust III 2028 7.38% 1,000 78,105 78,105 78 78
------------ ---------- ----- ------
Total 2,078,105 2,078,105 $ 128 $ 128
============ ========== ===== ======
The securities issued by the PECO trusts represent Company-Obligated Mandatorily
Redeemable Preferred Securities of a Partnership (COMRPS) having a distribution
rate and liquidation value equivalent to the trust securities. The COMRPS are
the sole assets of these trusts and represent limited partnership interests of
PECO Energy Capital, L.P. (Partnership), a Delaware limited partnership. Each
holder of a trust's securities is entitled to withdraw the corresponding number
of COMRPS from the trust in exchange for the trust securities so held. Each
series of COMRPS is supported by PECO's deferrable interest subordinated
debentures, held by the Partnership, which bear interest at rates equal to the
distribution rates on the related series of COMRPS.
The interest expense on the debentures is included in Other Income and
Deductions in the Consolidated Statements of Income and is deductible for income
tax purposes.
141
16. COMMON STOCK
At December 31, 2001 and 2000, common stock without par value consisted of
600,000,000 and 600,000,000 shares authorized and 170,478,507 and 170,478,507
shares outstanding, respectively.
STOCK REPURCHASE In January 2000, in connection with the Merger Agreement, PECO
entered into a forward purchase agreement to purchase $500 million of its common
stock from time to time. Settlement of this forward purchase agreement was, at
PECO's election, on a physical, net share or net cash basis. In May 2000, PECO
utilized a portion of the proceeds from the securitization of its stranded cost
recovery to physically settle this agreement, resulting in the repurchase of 12
million shares of common stock for $496 million. In connection with the
settlement of this agreement, PECO received $1 million in accumulated dividends
on the repurchased shares and paid $6 million of interest.
During 1997, PECO's Board of Directors authorized the repurchase of up
to 25 million shares of its common stock from time to time through open-market,
privately negotiated and/or other types of transactions in conformity with the
rules of the SEC. Pursuant to these authorizations, PECO entered into forward
purchase agreements to be settled from time to time, at PECO's election, on a
physical, net share or net cash basis. PECO utilized the proceeds from the
securitization of a portion of its stranded cost recovery in the first quarter
of 1999, to physically settle these agreements, resulting in the purchase of 21
million shares of common stock for $696 million. In connection with the
settlement of these agreements, PECO received $18 million in accumulated
dividends on the repurchased shares and paid $6 million of interest.
Shares Outstanding The following table details PECO's common stock and treasury
stock:
Common Treasury
(in thousands) Shares Shares
- -------------- ------ ------
Balance, December 31, 1998 224,684 --
Long Term Incentive Plan Issuances 670 --
Common Stock Repurchases -- 44,082
------- ------
Balance, December 31, 1999 225,354 44,082
Long Term Incentive Plan Issuances -- (195)
Cancellation of Treasury Shares (54,875) (54,875)
Common Stock Repurchases -- 11,950
Stock Option Exercises -- (962)
------- ------
Balance, December 31, 2000 170,479 --
------- ------
Balance, December 31, 2001 170,479 --
======= ======
142
17. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES
The carrying amounts and fair values of PECO's financial assets and liabilities
as of December 31, 2001 and 2000 were as follows:
2001 2000
------------------------- --------------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
NON-DERIVATIVES:
Liabilities
Long-term debt (including
amounts due within one year) $ 5,986 $ 6,199 $ 6,555 $ 6,797
COMRPS $ 128 $ 127 $ 128 $ 122
Mandatorily Redeemable
Preferred Stock $ 19 $ 10 $ 37 $ 30
DERIVATIVES:
Interest rate swaps $ (19) $ (19) -- $ (19)
Forward interest rate swaps -- -- -- $ 40
Cash and cash equivalents, customer accounts receivable and trust accounts for
decommissioning nuclear plants are recorded at their fair value.
As of December 31, 2001 and 2000, PECO's carrying amounts of cash and
cash equivalents and accounts receivable are representative of fair value
because of the short-term nature of these instruments. Fair values of the trust
accounts for decommissioning nuclear plants, long-term debt, COMRPS and
Mandatorily Redeemable Preferred Stock are estimated based on quoted market
prices for the same or similar issues. The fair value of PECO's interest rate
swaps and power purchase and sale contracts is determined using quoted exchange
prices, external dealer prices, or internal valuation models which utilize
assumptions of future energy prices and available market pricing curves.
Financial instruments that potentially subject PECO to concentrations
of credit risk consist principally of cash equivalents and customer accounts
receivable. PECO places its cash equivalents with high-credit quality financial
institutions. Generally, such investments are in excess of the Federal Deposit
Insurance Corporation limits. Concentrations of credit risk with respect to
customer accounts receivable are limited due to PECO's large number of customers
and their dispersion across many industries.
In 1999, PECO entered into interest rate swaps to manage interest rate
exposure in the aggregate notional amount of $326 million. These swaps have been
designated as cash-flow hedges under SFAS No. 133, and as such, as long as the
hedge remains effective and the underlying transaction remains probable, changes
in the fair value of these swaps will be recorded in accumulated other
comprehensive income (loss) until earnings are affected by the variability of
the cash flows being hedged.
The notional amount of derivatives do not represent amounts that are
exchanged by the parties and, thus, are not a measure of PECO's exposure. The
amounts exchanged are calculated on the basis of the notional or contract
amounts, as well as on the other terms of the derivatives, which relate to
interest rates and the volatility of these rates.
PECO would be exposed to credit-related losses in the event of
non-performance by the counterparties that issued the derivative instruments.
The credit exposure of derivatives contracts is represented by the fair value of
contracts at the reporting date. PECO's interest rate swaps are documented under
master agreements. Among other things, these agreements provide for a maximum
credit exposure for both parties. Payments are required by the appropriate party
when the maximum limit is reached.
143
On January 1, 2001, PECO deferred a non-cash gain of $40 million, net
of income taxes, in accumulated other comprehensive income, a component of
shareholders' equity, to reflect the initial adoption of SFAS No. 133, as
amended. SFAS No. 133 is applied to all derivative instruments and requires that
such instruments be recorded in the balance sheet either as an asset or a
liability measured at their fair value through earnings, with special accounting
permitted for certain qualifying hedges.
For 2001, $6 million ($4 million, net of income taxes) was reclassified
from accumulated other comprehensive income into earnings as a result of
forecasted financing transactions no longer being probable.
As of December 31, 2001, $15 million of deferred net gains on
derivative instruments accumulated in other comprehensive income are expected to
be reclassified to earnings during the next twelve months. Amounts in
accumulated other comprehensive income related to interest rate cash flows are
reclassified into earnings when the forecasted interest payment occurs.
18. COMMITMENTS AND CONTINGENCIES
ENVIRONMENTAL ISSUES PECO's operations have in the past and may in the future
require substantial capital expenditures in order to comply with environmental
laws. Additionally, under Federal and state environmental laws, PECO is
generally liable for the costs of remediating environmental contamination of
property now or formerly owned by PECO and of property contaminated by hazardous
substances generated by PECO. PECO owns or leases a number of real estate
parcels, including parcels on which its operations or the operations of others
may have resulted in contamination by substances that are considered hazardous
under environmental laws. PECO has identified 28 sites where former manufactured
gas plant (MGP) activities have or may have resulted in actual site
contamination. PECO is currently involved in a number of proceedings relating to
sites where hazardous substances have been deposited and may be subject to
additional proceedings in the future.
As of December 31, 2001 and 2000, PECO had accrued $37 million and $54
million, respectively, for environmental investigation and remediation costs,
including $27 million and $30 million, respectively, for MGP investigation and
remediation, that currently can be reasonably estimated. In conjunction with the
corporate restructuring in January 2001, PECO transferred a portion of the
environmental investigation and remediation costs to Generation. PECO cannot
reasonably estimate whether it will incur other significant liabilities for
additional investigation and remediation costs at these or additional sites
identified by PECO, environmental agencies or others, or whether such costs will
be recoverable from third parties.
LEASES Minimum future operating lease payments, which consist primarily of lease
payments for autos, as of December 31, 2001 were:
2002 $ 2
2003 2
2004 2
2005 2
2006 2
Remaining years 3
---
Total minimum future lease payments $13
===
Rental expense under operating leases totaled $2 million, $36 million, and $54
million in 2001, 2000 and 1999, respectively.
144
LITIGATION
General. PECO is involved in various litigation matters. The ultimate
outcome of such matters, while uncertain, is not expected to have a material
adverse effect on its respective financial condition or results of operations.
19. SEGMENT INFORMATION
As a result of the corporate restructuring in January 2001, PECO operates in one
segment - energy delivery. Energy delivery consists of the retail electricity
distribution and transmission business of PECO in southeastern Pennsylvania and
the natural gas distribution business of PECO located in the Pennsylvania
counties surrounding the City of Philadelphia. Prior to 2001, PECO operated in
two other business segments, generation and enterprises. See Note 2 - Corporate
Restructuring.
Generation consisted of electric generating facilities, energy
marketing operations and PECO's interests in Sithe and AmerGen. Enterprises
consisted of competitive retail energy sales, energy and infrastructure
services, communications and other investments weighted towards the
communications, energy services and retail services industries. Prior to 2001,
PECO evaluated the performance of its business segments based on Earnings Before
Interest Expense and Income Taxes (EBIT). An analysis and reconciliation of
PECO's business segment information to the respective information in the
consolidated financial statements are as follows:
Energy Intersegment
Delivery Generation Enterprises Corporate Eliminations Consolidated
-------- ---------- ----------- --------- ------------ ------------
TOTAL REVENUES:
2000 $ 3,373 $2,803 $ 697 $ -- $(923) $ 5,950
1999 3,265 2,411 644 -- (842) 5,478
INTERSEGMENT
REVENUES:
2000 $ 4 $ 872 $ 47 $ -- $(923) $ --
1999 -- 842 -- -- (842) --
EBIT (a):
2000 (b) $ 1,139 $ 341 $(136) $(172) $ -- $ 1,172
1999 1,372 379 (212) (194) -- 1,345
DEPRECIATION
AND AMORTIZATION:
2000 $ 195 $ 98 $ 32 $ -- $ -- $ 325
1999 108 125 4 -- -- 237
CAPITAL
EXPENDITURES:
2000 $ 219 $ 243 $ 64 $ 23 $ -- $ 549
1999 205 245 1 40 -- 491
TOTAL ASSETS:
2000 $13,100 $1,648 $ 991 $(963) $ -- $14,776
1999 10,306 1,734 640 407 -- 13,087
(a) EBIT consists of operating income, equity in earnings (losses) of
unconsolidated affiliates, and other income and expenses recorded in other,
net with the exception of investment income. Investment income for 2000 and
1999 was $50 million and $52 million, respectively.
(b) Includes non-recurring items of $248 million for Merger-related expenses
in 2000.
Equity in losses of communications joint ventures of $45 million and $38 million
for 2000, and 1999, respectively, are included in the Enterprises business
unit's EBIT. Equity in earnings of AmerGen and Sithe of $4 million for 2000 are
included in the generation business unit's EBIT.
145
20. RELATED PARTY TRANSACTIONS
At December 31, 2000, PECO had a $400 million payable to ComEd, which was repaid
in the second quarter of 2001. The average annual interest rate on this payable
for the period outstanding was 6.5%. Interest expense related to this payable
for 2001 was $8 million.
Effective January 1, 2001, Exelon contributed to PECO a $2.0 billion
non-interest bearing receivable related to Exelon's agreement to fund future
income tax payments resulting from the collection of competitive transition
charges. This receivable is reflected as a reduction of Shareholders' Equity in
PECO's Consolidated Balance Sheets and is expected to be settled over the years
2002 through 2010. As of December 31, 2001, the balance of this receivable from
Exelon was $1.9 billion. In addition, at December 31, 2001, PECO had a $60
million payable to Exelon related to stock options in 2000.
PECO paid common stock dividends of $342 million to Exelon in 2001.
In connection with the transfer of the generation assets in the
corporate restructuring, PECO entered into a PPA with Generation. See Note 2 -
Corporate Restructuring. Intercompany power purchases pursuant to the PPA for
2001 were $1,162 million. As of December 31, 2001, PECO's payable related to the
PPA was $90 million. In addition, at December 31, 2001, PECO had a $28 million
payable to Generation for various services.
Effective January 1, 2001, upon the corporate restructuring, PECO
receives a variety of corporate support services from BSC, including legal,
human resources, financial and information technology services. Such services,
provided at cost including applicable overhead, were $36 million for 2001.
At December 31, 2001, there was a $41 million payable to BSC. During
2001, PECO received intercompany interest income of $10 million primarily
related to bills and payroll paid on behalf of BSC.
PECO received services from Enterprises during 2001 for deployment of
automated meters and meter reading services for $24 million. At December 31,
2001, PECO had recorded a $8 million payable to Enterprises.
21. QUARTERLY DATA (UNAUDITED)
The data shown below include all adjustments which PECO considers necessary for
a fair presentation of such amounts:
Income (Loss) Before
Extraordinary Items and
Operating Operating Cumulative Effect of a Net
Revenues Income Change in Accounting Principle Income (Loss)
------------------ ---------------- ------------------------------ --------------
2001 2000 2001 2000(a) 2001 2000 (a) 2001 2000(a)
------- ------ ---- ------- ---- -------- ----- -------
Quarter ended:
March 31 $1,051 $1,352 $287 $343 $122 $166 $122 $195
June 30 $ 906 $1,385 $246 $313 $ 85 $124 $ 85 $118
September 30 $1,051 $1,629 $258 $449 $104 $238 $104 $235
December 31 $ 957 $1,584 $208 $117 $114 $(41) $114 $(41)
(a) Reflects incremental Merger expenses of $11 million, $9 million, $13
million and $215 million ($129 million, net of tax) for each of the four
quarters in 2000, respectively, which were reflected in Operating and
Maintenance expense.
146
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Exelon, ComEd and PECO
None.
147
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Exelon
The information required by Item 10 relating to directors and nominees
for election as directors at Exelon's Annual Meeting of shareholders is
incorporated herein by reference to the information under the heading "BOARD OF
DIRECTORS" on pages 16-19 and "OTHER INFORMATION - Section 16(a) Beneficial
Ownership Reporting Compliance" on page 37 in Exelon's definitive Proxy
Statement (2002 Exelon Proxy Statement) filed with the SEC on March 13, 2002,
pursuant to Regulation 14A under the Securities Exchange Act of 1934. The
information required by Item 10 relating to executive officers is set forth
above in ITEM 1. Business - Executive Officers of Exelon, ComEd and PECO.
ComEd
The information required by Item 10 relating to directors and nominees
for election as directors at ComEd's annual meeting of shareholders is
incorporated herein by reference to information under the subheadings "Nominees"
and "Security Ownership of Certain Beneficial Owners and Management" under the
heading "Election of Directors" in ComEd's definitive Information Statement
(2002 ComEd Information Statement) to be filed with the SEC prior to April 30,
2002, pursuant to Regulation 14C under the Securities Exchange Act of 1934. The
information required by Item 10 relating to executive officers is set forth
above in ITEM 1. Business - Executive Officers of Exelon, ComEd and PECO.
PECO
The information required by Item 10 relating to directors and nominees
for election as directors at PECO's annual meeting of shareholders is
incorporated herein by reference to information under the subheadings "Nominees"
and "Security Ownership of Certain Beneficial Owners and Management" under the
heading "Election of Directors" in PECO's definitive Information Statement (2002
PECO Information Statement) to be filed with the SEC prior to April 30, 2002,
pursuant to Regulation 14C under the Securities Exchange Act of 1934. The
information required by Item 10 relating to executive officers is set forth
above in ITEM 1. Business - Executive Officers of Exelon, ComEd and PECO.
ITEM 11. EXECUTIVE COMPENSATION
Exelon
The information required by Item 11 is incorporated herein by reference
to the information labeled "Board Compensation" and pages 13-36 in the 2002
Exelon Proxy Statement.
148
ComEd
The information required by Item 11 is incorporated herein by reference
to the paragraph labeled "Compensation of Directors" under the heading "Election
of Directors" and the paragraphs under the heading "Executive Compensation"
(other than the paragraphs under the subheading "Compensation Committee Report
on Executive Compensation") in the 2002 ComEd Information Statement.
PECO
The information required by Item 11 is incorporated herein by reference
to the paragraph labeled "Compensation of Directors" under the heading "Election
of Directors" and the paragraphs under the heading "Executive Compensation"
(other than the paragraphs under the subheading "Compensation Committee Report
on Executive Compensation") in 2002 PECO Information Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Exelon
The information required by Item 12 is incorporated herein by reference
to the stock ownership information under the heading "BENEFICIAL OWNERSHIP" on
pages 14-15 in the 2002 Exelon Proxy Statement.
ComEd
The information required by Item 12 is incorporated herein by reference
to the stock ownership information under the subheading "Security Ownership of
Certain Beneficial Owners and Management" under the heading "Election of
Directors" in the 2002 ComEd Information Statement.
PECO
The information required by Item 12 is incorporated herein by reference
to the stock ownership information under the subheading "Security Ownership of
Certain Beneficial Owners and Management" under the heading "Election of
Directors" in the 2002 PECO Information Statement.
149
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Exelon
The information required by Item 13 is incorporated herein by reference
to the information labeled "OTHER INFORMATION - Transactions with Management" on
page 37 in the 2002 Exelon Proxy Statement.
ComEd
The information required by Item 13 is incorporated herein by reference
to the information under the subheading "Transactions with Management" under the
heading "Other Information" in the 2002 ComEd Information Statement.
PECO
None.
150
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Shareholders and Board of Directors
of Exelon Corporation:
Our audits of the consolidated financial statements referred to in our report
dated January 29, 2002, except for Note 25 for which the date is March 1, 2002,
appearing in the 2001 Annual Report to Shareholders of Exelon Corporation (which
report and consolidated financial statements are incorporated by reference in
this Annual Report on Form 10-K) also included an audit of the financial
statement schedule listed in Item 14(a)(1)(ii) of this Form 10-K. In our
opinion, this financial statement schedule presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements.
PricewaterhouseCoopers LLP
Chicago, Illinois
January 29, 2002
151
(a) Financial Statements and Financial Statement Schedules
(1) Exelon
(i) Financial Statements
Consolidated Statements of Income for the years 2001, 2000
and 1999
Consolidated Statements of Cash Flows for the years 2001,
2000 and 1999
Consolidated Balance Sheets as of December 31, 2001 and 2000
Consolidated Statements of Changes in Shareholders' Equity
for the years 2001, 2000 and 1999
Consolidated Statements of Comprehensive Income for the
years 2001, 2000 and 1999
Notes to Consolidated Financial Statements
(ii) Financial Statement Schedule
152
EXELON CORPORATION AND SUBSIDIARY COMPANIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(IN MILLIONS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -------- -------- -------- -------- --------
ADDITIONS
-------------------
CHARGED
BALANCE AT TO COST CHARGED
BEGINNING AND TO OTHER BALANCE AT
DESCRIPTION OF YEAR EXPENSES ACCOUNTS DEDUCTIONS END OF YEAR
- ----------- ---------- -------- -------- ---------- -----------
FOR THE YEAR ENDED
DECEMBER 31, 2001
Allowance for Uncollectible
Accounts $ 200 $145 $ -- $132(a) $ 213
Reserve for:
Merger-Related Costs $ 144 $ -- $ 41 $ 71 $ 114
Injuries and Damages $ 69 $ 17 $ 2 $ 16(b) $ 72
Environmental Investigation
and Remediation $ 171 $ 1 $ -- $ 16(c) $ 156
Obsolete Materials $ 103 $ 16 $ -- $101 $ 18
FOR THE YEAR ENDED
DECEMBER 31, 2000
Allowance for Uncollectible
Accounts $ 112 $ 87 $ 59(d) $ 58(a) $ 200
Reserve for:
Merger-Related Costs $ -- $ -- $149(e) $ 5 $ 144
Injuries and Damages $ 23 $ 9 $ 48(f) $ 11(b) $ 69
Environmental Investigation
and Remediation $ 57 $ 26 $ 98(e) $ 10(c) $ 171
Obsolete Materials $ -- $ 48 $ 55(e) $ 3 $ 100
FOR THE YEAR ENDED
DECEMBER 31, 1999
Allowance for Uncollectible
Accounts $ 122 $ 59 $ -- $ 69(a) $ 112
Reserve for:
Injuries and Damages $ 27 $ 7 $ -- $ 11(b) $ 23
Environmental Investigation
and Remediation $ 60 $ -- $ -- $ 3(c) $ 57
(a) Write-off of individual accounts receivable.
(b) Payments of claims and related costs.
(c) Expenditures for site investigation and remediation.
(d) Includes October 20, 2000 opening balance of former Unicom Corporation of
$48.
(e) Reflects October 20, 2000 opening balance of former Unicom Corporation.
(f) Reflects October 20, 2000 opening balance of former Unicom Corporation of
$47 million.
153
(2) ComEd
(i) Financial Statements
Consolidated Statements of Income for the year 2001, the periods from
October 20, 2000 to December 31, 2000 and from January 1, 2000 to
October 19, 2000 and the year 1999
Consolidated Statements of Cash Flows for the year 2001, the periods
from October 20, 2000 to December 31, 2000 and from January 1, 2000 to
October 19, 2000 and the year 1999
Consolidated Balance Sheets as of December 31, 2001 and 2000
Consolidated Statements of Changes in Shareholders' Equity for the year
2001, the periods from October 20, 2000 to December 31, 2000 and from
January 1, 2000 to October 19, 2000 and the year 1999
Consolidated Statements of Comprehensive Income for the year 2001, the
periods from October 20, 2000 to December 31, 2000 and from January 1,
2000 to October 19, 2000 and the year 1999
Notes to Consolidated Financial Statements
(ii) Financial Statement Schedule
154
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(IN MILLIONS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- -------- -------- -------- -------- -------- --------
ADDITIONS
------------------
CHARGED
BALANCE AT TO COST CHARGED
BEGINNING AND TO OTHER RESTRUCTURING BALANCE AT
DESCRIPTION OF YEAR EXPENSES ACCOUNTS DEDUCTIONS TRANSFERS(A) END OF YEAR
- ----------- ------- -------- -------- ---------- ------------ -----------
FOR THE YEAR ENDED
DECEMBER 31, 2001
Allowance for Uncollectible
Accounts $ 60 $ 42 $ 1 $ 54 $ -- $ 49
Reserve for:
Merger-Related Costs $ 144 $ -- $ 33 $ 70 $ 45 $ 62
Injuries and Damages $ 48 $ 4 $ -- $ 7(b) $ 8 $ 37
Environmental Investigation
and Remediation $ 117 $ 1 $ -- $ 13(c) $ -- $ 105
Obsolete Materials $ 98 $ -- $ -- $ 14 $ 78 $ 6
FOR THE YEAR ENDED
DECEMBER 31, 2000
Allowance for Uncollectible
Accounts $ 49 $ 46 $ 11 $ 46 $ -- $ 60
Reserve for:
Merger-Related Costs $ -- $ -- $149 $ 5 $ -- $ 144
Injuries and Damages $ 55 $ 10 $ 5 $ 22(b) $ -- $ 48
Environmental Investigation
and Remediation $ 100 $ 26 $ -- $ 9(c) $ -- $ 117
Obsolete Materials $ 27 $ 57 $ 19 $ 5 $ -- $ 98
FOR THE YEAR ENDED
DECEMBER 31, 1999
Allowance for Uncollectible
Accounts $ 48 $ 89 $ -- $ 88 $ -- $ 49
Reserve for:
Injuries and Damages $ 47 $ 28 $ 7 $ 27(b) $ -- $ 55
Environmental Investigation
and Remediation $ 32 $ 74 $ -- $ 6(c) $ -- $ 100
Obsolete Materials $ 24 $ 19 $ -- $ 16 $ -- $ 27
Closing Costs for
Zion Station (d) $ 79 $ -- $ -- $ 79 $ -- $ --
(a) Represents amounts transferred as part of the Corporate Restructuring. See
ITEM 8. Financial Statements and Supplementary Information - ComEd, Note 2
of Notes to Consolidated Financial Statements.
(b) Payments of claims and related costs.
(c) Expenditures for site investigation and remediation.
(d) Estimated closing costs related to the permanent cessation of nuclear
generation operations and retirement of facilities at ComEd's Zion Station.
155
(3) PECO
(i) Financial Statements
Consolidated Statements of Income for the years 2001, 2000
and 1999
Consolidated Statements of Cash Flows for the years 2001,
2000 and 1999
Consolidated Balance Sheets as of December 31, 2001 and 2000
Consolidated Statements of Changes in Shareholders' Equity for the
years 2001, 2000 and 1999
Consolidated Statements of Comprehensive Income for the years
2001, 2000 and 1999
Notes to Consolidated Financial Statements
(ii) Financial Statement Schedule
156
PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(IN MILLIONS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- -------- -------- -------- -------- -------- --------
ADDITIONS
-------------------
CHARGED
BALANCE AT TO COST CHARGED
BEGINNING AND TO OTHER RESTRUCTURING BALANCE AT
DESCRIPTION OF YEAR EXPENSES ACCOUNTS DEDUCTIONS TRANSFERS(A) END OF YEAR
- ----------- ---------- -------- -------- ---------- ------------- -----------
FOR THE YEAR ENDED DECEMBER 31, 2001
Allowance for Uncollectible Accounts $131 $ 69 $-- $ 67(b) $23 $110
Reserve for:
Injuries and Damages $ 21 $ 13 $-- $ 9(c) $-- $ 25
Environmental Investigation and
Remediation $ 54 $-- $-- $ 2(d) $15 $ 37
Obsolete Materials $ 3 $ 6 $-- $ 7 $ 1 $ 1
FOR THE YEAR ENDED DECEMBER 31, 2000
Allowance for Uncollectible Accounts $112 $ 68 $-- $ 49(b) $-- $131
Reserve for:
Injuries and Damages $ 23 $ 7 $-- $ 9(c) $-- $ 21
Environmental Investigation and
Remediation $ 57 $-- $-- $ 3(d) $-- $ 54
FOR THE YEAR ENDED DECEMBER 31, 1999
Allowance for Uncollectible Accounts $122 $ 59 $-- $ 69(b) $-- $112
Reserve for:
Injuries and Damages $ 27 $ 7 $-- $ 11(c) $-- $ 23
Environmental Investigation and
Remediation $ 60 $-- $-- $ 3(d) $-- $ 57
(a) Represents amounts transferred as part of the Corporate Restructuring. See
ITEM 8. Financial Statements and Supplementary Information - ComEd, Note 2
of the Notes to Consolidated Financial Statements.
(b) Write-off of individual accounts receivable.
(c) Payments of claims and related costs.
(d) Expenditures for site investigation and remediation.
157
The individual financial statements and schedules of Exelon's
and ComEd's nonconsolidated wholly owned subsidiaries have been omitted
from their respective Annual Reports on Form 10-K because the
investments are not material in relation to their respective financial
positions or results of operations. As of December 31, 2001, the assets
of the nonconsolidated subsidiaries, in the aggregate, were less than
1% of Exelon's and ComEd's consolidated assets. The 2001 revenues of
the nonconsolidated subsidiaries, in the aggregate, were less than 1%
of Exelon's and ComEd's consolidated annual revenues.
(b) Reports on Form 8-K
(1) Exelon
Exelon filed Current Reports on Form 8-K during the fourth
quarter of 2001 regarding the following items:
Date of Earliest
Event Reported Description of Item Reported
- -------------- ----------------------------
October 23, 2001 "ITEM 5. OTHER EVENTS" regarding Exelon's earnings
release for the third quarter of 2001.
October 23, 2001 "ITEM 9. REGULATION FD DISCLOSURE" regarding
highlights and clarifications of the Exelon Third Quarter Earnings
Conference Call.
October 29, 2001 "ITEM 9. REGULATION FD DISCLOSURE" regarding a
presentation by John W. Rowe, Co-CEO and President of Exelon, at the
Edison Electric Institute Conference. The exhibits under "ITEM 7. FINANCIAL
STATEMENTS AND EXHIBITS" include the slide presentation and
additional information.
November 28, 2001 "ITEM 9. REGULATION FD DISCLOSURE" regarding a
press release issued by Exelon disclosing its direct net exposure to
Enron.
December 20, 2001 "ITEM 5. OTHER EVENTS" regarding the announcement
by Exelon of its intention to purchase two generating plants from TXU
Corp. and "ITEM 9. REGULATION FD DISCLOSURE" regarding additional
information related to the acquisition.
158
(2) ComEd
ComEd filed Current Reports on Form 8-K during the fourth
quarter of 2001 regarding the following items:
Date of Earliest
Event Reported Description of Item Reported
- -------------- ----------------------------
October 23, 2001 "ITEM 5. OTHER EVENTS" regarding Exelon's earnings release for the third quarter of 2001.
October 23, 2001 "ITEM 9. REGULATION FD DISCLOSURE" regarding highlights and clarifications of the Exelon
Third Quarter Earnings Conference Call.
October 29, 2001 "ITEM 9. REGULATION FD DISCLOSURE" regarding a presentation by John W. Rowe, Co-CEO and
President of Exelon, at the Edison Electric Institute Conference. The exhibits under "ITEM 7.
FINANCIAL STATEMENTS AND EXHIBITS" include the slide presentation and additional information.
(3) PECO
PECO filed Current Reports on Form 8-K during the fourth
quarter of 2001 regarding the following items:
Date of Earliest
Event Reported Description of Item Reported
- -------------- ----------------------------
October 23, 2001 "ITEM 5. OTHER EVENTS" regarding Exelon's earnings release for the third quarter of 2001.
October 23, 2001 "ITEM 9. REGULATION FD DISCLOSURE" regarding highlights and clarifications of the Exelon
Third Quarter Earnings Conference Call.
October 29, 2001 "ITEM 9. REGULATION FD DISCLOSURE" regarding a presentation by John W. Rowe, Co-CEO and
President of Exelon, at the Edison Electric Institute Conference. The exhibits under "ITEM 7.
FINANCIAL STATEMENTS AND EXHIBITS" include the slide presentation and additional information.
October 30, 2001 "ITEM 5. OTHER EVENTS" regarding the issuance of a press release announcing the sale of
$250 million of PECO first mortgage bonds through private placement.
159
(c) Exhibits
Certain of the following exhibits are incorporated herein by reference
under Rule 12b-32 of the Securities and Exchange Act of 1934, as amended.
Certain other instruments which would otherwise be required to be listed below
have not been so listed because such instruments do not authorize securities in
an amount which exceeds 10% of the total assets of the applicable registrant and
its subsidiaries on a consolidated basis and the relevant registrant agrees to
furnish a copy of any such instrument to the Commission upon request.
Exhibit No. Description
- ----------- -----------
2-1 Amended and Restated Agreement and Plan of Merger dated as
of October 20, 2000, among PECO Energy Company, Exelon
Corporation and Unicom Corporation (File No. 1-01401, PECO
Energy Company Form 10-Q for the quarter ended September 30,
2000, Exhibit 2-1)
3-1 Articles of Incorporation of Exelon Corporation (Registration
Statement No. 333-37082, Form S-4, Exhibit 3-1).
3-2 Bylaws of Exelon Corporation (Registration Statement No. 333-37082,
Form S-4, Exhibit 3-2).
3-3 Amended and Restated Articles of Incorporation of PECO Energy
Company (File No. 1-1401, 2000 Form 10-K, Exhibit 3-3).
3-4 Bylaws of PECO Energy Company, adopted February 26, 1990 and amended January
26, 1998 (File No. 1-01401, 1997 Form 10-K, Exhibit 3-2).
3-5 Restated Articles of Incorporation of Commonwealth Edison Company effective
February 20, 1985, including Statements of Resolution Establishing Series,
relating to the establishment of three new series of Commonwealth Edison Company
preference stock known as the "$9.00 Cumulative Preference Stock," the "$6.875
Cumulative Preference Stock" and the "$2.425 Cumulative Preference Stock" (File
No. 1-1839, 1994 Form 10-K, Exhibit 3-2).
3-6 Bylaws of Commonwealth Edison Company, effective September 2, 1998, as
amended through October 20, 2000 (File No. 1-1839, 2000 Form 10-K, Exhibit 3-6).
4-1 364-day Credit Agreement, dated as of December 12, 2001, among Exelon
Corporation, Commonwealth Edison Company, PECO Energy Company and Exelon
Generation, LLC as Borrowers, certain banks named therein as Lenders, Bank One, N.A., as
Administrative Agent, ABN AMRO Bank, N.V. and Barclays Bank plc, as Co-documentation
Agents, Citibank, N.A. and First Union National Bank, as Co-syndication Agents and
Banc One Capital Markets, Inc., as Lead Arranger and Sole Book Runner.
4-2 First and Refunding Mortgage dated May 1, 1923 between The Counties Gas and
Electric Company (predecessor to PECO Energy Company) and Fidelity Trust
Company, Trustee (First Union National Bank, successor), (Registration No.
2-2281, Exhibit B-1).
4-2-1 Supplemental Indentures to PECO Energy Company's First and Refunding Mortgage:
160
Dated as of File Reference Exhibit No.
----------- -------------- -----------
May 1, 1927 2-2881 B-1(c)
March 1, 1937 2-2881 B-1(g)
December 1, 1941 2-4863 B-1(h)
November 1, 1944 2-5472 B-1(i)
December 1, 1946 2-6821 7-1(j)
September 1, 1957 2-13562 2(b)-17
May 1, 1958 2-14020 2(b)-18
March 1, 1968 2-34051 2(b)-24
March 1, 1981 2-72802 4-46
March 1, 1981 2-72802 4-47
December 1, 1984 1-01401, 1984 Form 10-K 4-2(b)
April 1, 1991 1-01401, 1991 Form 10-K 4(e)-76
December 1, 1991 1-01401, 1991 Form 10-K 4(e)-77
April 1, 1992 1-01401, March 31, 1992
Form 10-Q 4(e)-79
June 1, 1992 1-01401, June 30, 1992
Form 10-Q 4(e)-81
July 15, 1992 1-01401, June 30, 1992
Form 10-Q 4(e)-83
September 1, 1992 1-01401, 1992 Form 10-K 4(e)-85
March 1, 1993 1-01401, 1992 Form 10-K 4(e)-86
May 1, 1993 1-01401, March 31, 1993
Form 10-Q 4(e)-88
May 1, 1993 1-01401, March 31, 1993
Form 10-Q 4(e)-89
August 15, 1993 1-01401, Form 8-A dated
August 19, 1993 4(e)-92
May 1, 1995 1-01401, Form 8-K dated 4(e)-96
May 24, 1995
October 15, 2001
4-3 Exelon Corporation Dividend Reinvestment and Stock Purchase Plan.
(Registration Statement No. 333-84446, Form S-3, Prospectus)
4-4 Mortgage of Commonwealth Edison Company to Illinois Merchants Trust Company,
Trustee (BNY Midwest Trust Company, as current successor Trustee), dated July 1,
1923, as supplemented and amended by Supplemental Indenture thereto dated August
1, 1944. (File No. 2-60201, Form S-7, Exhibit 2-1).
4-3 Exelon Corporation Dividend Reinvestment and Stock Purchase
Plan. (Registration Statement No. 333-84446, Form S-3, Prospectus)
4-4 Mortgage of Commonwealth Edison Company to Illinois Merchants Trust Company, Trustee
(BNY Midwest Trust Company, as current successor Trustee), dated July 1, 1923, as
supplemented and amended by Supplemental Indenture thereto dated August 1, 1944.
(File No. 2-60201, Form S-7, Exhibit 2-1).
161
4-4-1 Supplemental Indentures to aforementioned Commonwealth Edison Mortgage.
Dated as of File Reference Exhibit No.
----------- -------------- -----------
August 1, 1946 2-60201, Form S-7 2-1
April 1, 1953 2-60201, Form S-7 2-1
March 31, 1967 2-60201, Form S-7 2-1
April 1,1967 2-60201, Form S-7 2-1
February 28, 1969 2-60201, Form S-7 2-1
May 29, 1970 2-60201, Form S-7 2-1
June 1, 1971 2-60201, Form S-7 2-1
April 1, 1972 2-60201, Form S-7 2-1
May 31, 1972 2-60201, Form S-7 2-1
June 15, 1973 2-60201, Form S-7 2-1
May 31, 1974 2-60201, Form S-7 2-1
June 13, 1975 2-60201, Form S-7 2-1
May 28, 1976 2-60201, Form S-7 2-1
June 3, 1977 2-60201, Form S-7 2-1
May 17, 1978 2-99665, Form S-3 4-3
August 31, 1978 2-99665, Form S-3 4-3
June 18, 1979 2-99665, Form S-3 4-3
June 20, 1980 2-99665, Form S-3 4-3
April 16, 1981 2-99665, Form S-3 4-3
April 30, 1982 2-99665, Form S-3 4-3
April 15, 1983 2-99665, Form S-3 4-3
April 13, 1984 2-99665, Form S-3 4-3
April 15, 1985 2-99665, Form S-3 4-3
April 15, 1986 33-6879, Form S-3 4-9
June 15, 1990 33-38232, Form S-3 4-12
June 1, 1991 33-40018, Form S-3 4-12
October 1, 1991 33-40018, Form S-3 4-13
October 15, 1991 33-40018, Form S-3 4-14
February 1, 1992 1-1839, 1991 Form 10-K 4-18
May 15, 1992 33-48542, Form S-3 4-14
July 15, 1992 33-53766, Form S-3 4-13
September 15, 1992 33-53766, Form S-3 4-14
February 1, 1993 1-1839, 1992 Form 10-K 4-14
April 1, 1993 33-64028, Form S-3 4-12
April 15, 1993 33-64028, Form S-3 4-13
June 15, 1993 1-1839, Form 8-K dated May 4-1
July 15, 1993 1-1839, Form 10-Q for 4-1
quarter ended June 30, 1993.
January 15, 1994 1-1839, 1993 Form 10-K 4-15
December 1, 1994 1-1839, 1994 Form 10-K 4-16
June 1, 1996 1-1839, 1996 Form 10-K 4-16
March 1, 2002
162
4-4-2 Instrument of Resignation, Appointment and Acceptance dated as of February
20, 2002, under the provisions of the Mortgage dated July 1, 1923, and
Indentures Supplemental thereto, regarding corporate trustee.
4-4-3 Instrument dated as of January 31, 1996, under the provisions of the
Mortgage dated July 1, 1923 and Indentures Supplemental thereto, regarding
individual trustee (File No. 1-1839, 1995 Form 10-K, Exhibit 4-29).
4-5 Indenture dated as of September 1, 1987 between Commonwealth Edison Company
and Citibank, N.A., Trustee relating to Notes (File No. 1-1839, Form S-3,
Exhibit 4-13).
4-6-1 Supplemental Indentures to aforementioned Indenture.
Dated as of File Reference Exhibit No.
----------- -------------- -----------
September 1, 1987 33-32929, Form S-3 4-16
January 1, 1997 1-1839, 1999 Form 10-K 4-21
September 1, 2000 1-1839, 2000 Form 10-K 4-7-3
10-1 Stock Purchase Agreement among Exelon (Fossil) Holdings, Inc.,
as Buyer and The Stockholders of Sithe Energies, Inc., as
Sellers, and Sithe Energies, Inc. (File No. 0-16844, PECO
Energy Company Form 10-Q for the quarter ended September 30,
2000, Exhibit 10-1).
10-2 Amended and restated employment agreement between Exelon
Corporation and John W. Rowe dated as of November 26, 2001.*
10-3 Exelon Corporation Deferred Compensation Pension Benefit Plan*
10-4 Exelon Corporation Retirement Program
10-5 PECO Energy Company Unfunded Deferred Compensation Plan for
Directors* (Registration Statement No. 333-49780, Form S-8,
Exhibit 4-4).
10-6 Exelon Corporation Long-Term Incentive Plan As Amended and
Restated effective January 28, 2002 * (File No. 1-16169,
Exelon Proxy Statement dated March 13, 2002, Appendix B).
10-6-1 Forms of Restricted Stock Award Agreement under the Exelon
Corporation Long-Term Incentive Plan.*
10-6-2 Forms of Transferable Stock Option Award Agreement under the
Exelon Corporation Long-Term Incentive Plan.*
10-6-3 Forms of non-transferable Stock Option Award Agreement under
the Exelon Corporation Long-Term Incentive Plan*
10-7 PECO Energy Company Management Incentive Compensation Plan
*(File No. 1-01401, 1997 Proxy Statement, Appendix A).
10-8 PECO Energy Company 1998 Stock Option Plan *(Registration
Statement No. 333-37082, Post-Effective Amendment No. 1 to
Form S-4, Exhibit 4-3).
10-9 Exelon Corporation Employee Savings Plan
163
10-10 Second Amended and Restated Trust Agreement for PECO Energy
Transition Trust (File No. 333-58055, PECO Energy Transition
Trust Report on Form 8-K dated May 2, 2000, Exhibit 4.1).
10-11 Indenture dated as of March 1, 1999 between PECO Energy
Transition Trust and The Bank of New York. (File No.
333-58055, PECO Energy Transition Trust Report on Form 8-K
dated March 25, 1999, Exhibit 4.3.1).
10-11-1 Series Supplement dated as of March 25, 1999 between PECO
Energy Transition Trust and The Bank of New York. (File No.
333-58055, PECO Energy Transition Trust Report on Form 8-K
dated March 25, 1999, Exhibit 4.3.2).
10-11-2 Series Supplement dated as of March 1, 2001 between PECO
Energy Transition Trust and The Bank of New York. (File No.
333-58055, PECO Energy Transition Trust Report on Form 8-K
dated March 1, 2001, Exhibit 4.3.2).
10-11-3 Series Supplement dated as of May 2, 2000 between PECO Energy
Transition Trust and The Bank of New York (File No. 333-58055,
PECO Energy Transition Trust Report on Form 8-K dated May 2,
2000, Exhibit 4.3.2).
10-12 Intangible Transition Property Sale Agreement dated as of
March 25,1999, as amended and restated as of May 2, 2000,
between PECO Energy Transition Trust and PECO Energy Company.
(File No. 333-58055, PECO Energy Transition Trust Report on
Form 8-K dated May 2, 2000, Exhibit 10.1).
10-12-1 Amendment No. 1 to Intangible Transition Property Sale
Agreement dated as of March 25, 1999, as amended and restated
as of May 2, 2000 (File No. 1-01401, PECO Energy Company and
PECO Energy Transition Trust Report on Form 8-K dated March 1,
2001).
10-13 Master Servicing Agreement dated as of March 25, 1999, as
amended and restated as of May 2, 2000, between PECO Energy
Transition Trust and PECO Energy Company. (File No. 333-58055,
PECO Energy Transition Trust Current Report on Form 8-K dated
May 2, 2000, Exhibit 10.2).
10-13-1 Amendment No. 1 to Master Servicing Agreement dated as of
March 25, 1999, as amended and restated as of May 2, 2000
(File No. 1-01401, PECO Energy Company and PECO Energy
Transition Trust Report on Form 8-K dated March 1, 2001).
10-14 Exelon Corporation Cash Balance Pension Plan
164
10-15 Joint Petition for Full Settlement of PECO Energy Company's
Restructuring Plan and Related Appeals and Application for a
Qualified Rate Order and Application for Transfer of
Generation Assets dated April 29, 1998. (Registration
Statement No. 333-58055, Exhibit 10.3).
10-16 Joint Petition for Full Settlement of PECO Energy Company's
Application for Issuance of Qualified Rate Order Under Section
2812 of the Public Utility Code dated March 8, 2000 (Amendment
No. 1 to Registration Statement No. 333-31646, Exhibit 10.4).
10-17 Unicom Corporation Amended and Restated Long-Term Incentive
Plan *(File No. 1-11375, Unicom Proxy Statement dated April 7,
1999, Exhibit A).
10-17-1 First Amendment to Unicom Corporation Amended and Restated
Long Term Incentive Plan *(Registration Statement No.
333-49780, Form S-8, Exhibit 4-8).
10-17-2 Second Amendment to Unicom Corporation Amended and Restated
Long Term Incentive Plan *(Registration Statement No.
333-49780, Form S-8, Exhibit 4-9).
10-18 Unicom Corporation General Provisions Regarding 1996 Stock
Option Awards Granted under the Unicom Corporation and
Long-Term Incentive Plan. *(File Nos. 1-11375 and 1-1839, 1996
Form 10-K, Exhibit 10-9).
10-19 Unicom Corporation General Provisions Regarding 1996B Stock
Option Awards Granted under the Unicom Corporation Long-Term
Incentive Plan. *(File Nos. 1-11375 and 1-1839, 1996 Form
10-K, Exhibit 10-8).
10-20 Unicom Corporation General Provisions Regarding Stock Option
Awards Granted under the Unicom Corporation Long-Term
Incentive Plan (Effective July 10, 1997) *(File Nos. 1-11375
and 1-1839, 1999 Form 10-K, Exhibit 10-8).
10-21 Unicom Corporation Deferred Compensation Unit Plan, as amended
*(File Nos. 1-11375 and 1-1839, 1995 Form 10-K, Exhibit
10-12).
10-22 Exelon Corporation Corporate Stock Referral Plan*
10-23 Unicom Corporation Retirement Plan for Directors, as amended
*(Registration Statement No. 333-49780, Form S-8, Exhibit
4-12).
10-24 Commonwealth Edison Company Retirement Plan for Directors, as
amended *(Registration Statement No. 333-49780, Form S-8,
Exhibit 4-13).
10-25 Unicom Corporation 1996 Directors' Fee Plan *(File No.
1-11375, Unicom Proxy Statement dated April 8, 1996, Appendix
A).
165
10-25-1 Second Amendment to Unicom Corporation 1996 Directors Fee Plan
*(Registration Statement No. 333-49780, Form S-8, Exhibit
4-11).
10-26 Employment Agreement dated November 1, 1997 between
Commonwealth Edison Company and Oliver D. Kingsley, Jr. (File
Nos. 1-11375 and 1-1839, 1998 Form 10-K, Exhibit 10-22).
10-27 Change in Control Agreement between Unicom Corporation,
Commonwealth Edison Company and certain senior executives
*(File Nos. 1-11375 and 1-1839, 1998 Form 10-K,
Exhibit 10-24).
10-27-1 Forms of Change in Control Agreement Between PECO Energy
Company and Certain Employees *(File No. 1-1401, 2000 Form
10-K, Exhibit 10-25-1).
10-28 Commonwealth Edison Company Executive Group Life Insurance
Plan *(File No. 1-1839, 1980 Form 10-K, Exhibit 10-3).
10-28-1 Amendment to the Commonwealth Edison Company Executive Group
Life Insurance Plan *(File No. 1-1839, 1981 Form 10K, Exhibit
10-4).
10-28-2 Amendment to the Commonwealth Edison Company Executive Group
Life Insurance Plan dated December 12, 1986 *(File No. 1-1839,
1986 Form 10-K, Exhibit 10-6).
10-28-3 Amendment to the Commonwealth Edison Company Executive Group
Life Insurance Plan to implement program of "split dollar life
insurance" dated December 13, 1990 *(File No. 1-1839, 1990
Form 10-K, Exhibit 10-10).
10-28-4 Amendment to Commonwealth Edison Company Executive Group Life
Insurance Plan to stabilize the death benefit applicable to
participants dated July 22, 1992 *(File No. 1-1839, 1992 Form
10-K, Exhibit 10-13).
10-29 First Amendment to Exelon Corporation Employee Savings Plan
10-29-1 First Amendment to the Commonwealth Edison Company
Supplemental Management Retirement Plan. *(File No. 1-1839,
2000 Form 10-K, Exhibit 10-27-1)
10-30 Second Amendment and Restated Exelon Corporation Key Management
Severance Plan*
10-31 Forms of Change in Control Agreement between Exelon
Corporation and Certain Senior Executives.
166
10-32 Amendment No. 1 to Exelon Corporation Supplemental Executive
Retirement Plan*
10-33 Form of Stock Award Agreement under the Unicom Corporation
Long-Term Incentive Plan *(File Nos. 1-11375 and 1-1839, 1997
Form 10-K, Exhibit 10-37).
10-34 Amended and Restated Key Management Severance Plan for Unicom
Corporation and Commonwealth Edison Company dated March 8,
1999 *(File No. 1-1839, 1999 Form 10-K, Exhibit 10-38).
10-34-1 Exelon Corporation Employee Stock Purchase Plan (Registration
Statement No. 333-61390, Form S-8, Exhibit 4.2).
10-34-2 First Amendment to the Exelon Corporation Employee Stock
Purchase Plan.
10-35 PECO Energy Company Supplemental Pension Benefit Plan (As
Amended and Restated January 1, 2001)*
10-36 Exelon Corporation 2001 Performance Share Awards for Power
Team Employees Under the Exelon Corporation Long Term
Incentive Plan*
16 Arthur Andersen Letter to Securities and Exchange Commission
regarding the change in certifying accountant (File No.
1-01839, Exelon Corporation Report on Form 8-K dated November
28, 2000, Exhibit 16).
18-1 Letter from PricewaterhouseCoopers LLP addressed to Exelon
Corporation concerning a change in accounting principles (File
No. 1-16169, 2000 Form 10-K, Exhibit 18-1).
18-2 Letter from PricewaterhouseCoopers LLP addressed to PECO
Energy Company concerning a change in accounting principles
(File No. 1-1401, 2000 Form 10-K, Exhibit 10-30-1).
21 Subsidiaries
21-1 Exelon Corporation
21-2 Commonwealth Edison Company (File No. 1-1839, 2000 Form
10-K, Exhibit 21-3).
21-3 PECO Energy Company (File No. 1-1401, 2000 Form 10-K,
Exhibit 21-2).
167
23 Consent of Independent Accountants
23-1 Exelon Corporation
23-2-1 Commonwealth Edison Company
23-2-2 Commonwealth Edison Company
23-3 PECO Energy Company
99 Exelon Corporation's Current Report on Form 8-K dated
February 28, 2002, File No. 1-16169.
- -------------------------------------------------------------------------------
* Compensatory plan or arrangements in which directors or officers of the
applicable registrant participate and which are not available to all employees.
168
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Chicago
and State of Illinois on the 1st day of April, 2002.
EXELON CORPORATION
By: /S/ Corbin A. McNeill, Jr.
-------------------------------
Name: Corbin A. McNeill, Jr.
Title: Chairman and Co-Chief Executive Officer
By: /S/ John W. Rowe
-------------------------------
Name: John W. Rowe
Title: President and Co-Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the registrant
and in the capacities indicated on the 1st day of April, 2002.
Signature Title
--------- -----
/S/ Corbin A. McNeill, Jr. Chairman and Co-Chief Executive Officer and Director
- ---------------------------
Corbin A. McNeill, Jr. (Co-Chief Executive Officer)
/S/ John W. Rowe President and Co-Chief Executive Officer and Director
- ---------------------------
John W. Rowe (Co-Chief Executive Officer)
/S/ Ruth Ann M. Gillis Senior Vice President and Chief Financial Officer
- ---------------------------
Ruth Ann M. Gillis (Principal Financial and Accounting Officer)
This annual report has also been signed below by John W. Rowe and Randall E.
Mehrberg, Attorneys-in-Fact, on behalf of the following Directors on the date
indicated:
EDWARD A. BRENNAN RICHARD H. GLANTON
CARLOS H. CANTU ROSEMARIE B. GRECO
DANIEL L. COOPER EDGAR D. JANNOTTA
M. WALTER D'ALESSIO JOHN M. PALMS, PH.D.
BRUCE DEMARS JOHN W. ROGERS, JR.
G. FRED DIBONA, JR. RONALD RUBIN
SUE L. GIN RICHARD L. THOMAS
By: /S/ John W. Rowe April 1, 2002
-------------------------------------------------
Name: John W. Rowe
Title: President and Co-Chief Executive Officer
By: /S/ Randall E. Mehrberg April 1, 2002
-------------------------------------------------
Name: Randall E. Mehrberg
Title: Senior Vice President and General Counsel
169
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Chicago
and State of Illinois on the 1st day of April, 2002.
COMMONWEALTH EDISON COMPANY
By: /S/ John W. Rowe
------------------------------
Name: John W. Rowe
Title: President, Co-Chief Executive Officer
and Chairman
By: /S/ Corbin A. McNeill, Jr.
-------------------------------
Name: Corbin A. McNeill, Jr.
Title: Co-Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the registrant
and in the capacities indicated on the 1st day of April, 2002.
Signature Title
--------- -----
/S/ John W. Rowe President, Co-Chief Executive Officer and Chairman
- ---------------------------
John W. Rowe
/S/ Corbin A. McNeill, Jr. Co-Chief Executive Officer
- ---------------------------
Corbin A. McNeill, Jr.
/S/ Robert E. Berdelle Vice President and Chief Financial Officer
- ---------------------------
Robert E. Berdelle (Principal Financial and Accounting Officer)
/S/ Pamela B. Strobel Chairman
- ---------------------------
Pamela B. Strobel (Principal Executive Officer)
/S/ Ruth Ann M. Gillis Director
- ---------------------------
Ruth Ann M. Gillis
/S/ Kenneth G. Lawrence Director
- ---------------------------
Kenneth G. Lawrence
170
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Chicago
and State of Illinois on the 1st day of April, 2002.
PECO ENERGY COMPANY
By: /S/ Corbin A. McNeill, Jr.
-------------------------------
Name: Corbin A. McNeill, Jr.
Title: President, Co-Chief Executive Officer and
Chairman
By: /S/ John W. Rowe
-------------------------------
Name: John W. Rowe
Title: Co-Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the registrant
and in the capacities indicated on the 1st day of April, 2002.
Signature Title
--------- -----
/S/ Corbin A. McNeill, Jr. President, Co-Chief Executive Officer and Chairman
- ---------------------------
Corbin A. McNeill, Jr.
/S/ John W. Rowe Co-Chief Executive Officer
- ---------------------------
John W. Rowe
/S/ Frank F. Frankowski Vice President, Finance and Chief Financial Officer
- ---------------------------
Frank F. Frankowski (Principal Financial and Accounting Officer)
/S/ Pamela B. Strobel Chairman
- ---------------------------
Pamela B. Strobel (Principal Executive Officer)
/S/ Ruth Ann M. Gillis Director
- ---------------------------
Ruth Ann M. Gillis
/S/ Kenneth G. Lawrence Director
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Kenneth G. Lawrence
171
Exhibit 4-1
$1,500,000,000
364-DAY CREDIT AGREEMENT
dated as of December 12, 2001
among
EXELON CORPORATION,
COMMONWEALTH EDISON COMPANY,
PECO ENERGY COMPANY
and
EXELON GENERATION COMPANY, LLC
as Borrowers
VARIOUS FINANCIAL INSTITUTIONS
as Lenders
BANK ONE, NA
as Administrative Agent
ABN AMRO BANK, N.V.
and
BARCLAYS BANK PLC
as Co-Documentation Agents
and
CITIBANK, N.A.
and
FIRST UNION NATIONAL BANK
as Co-Syndication Agents
BANC ONE CAPITAL MARKETS, INC.
Lead Arranger and Sole Book Runner
364-DAY CREDIT AGREEMENT
dated as of December 12, 2001
EXELON CORPORATION, COMMONWEALTH EDISON COMPANY, PECO ENERGY COMPANY,
EXELON GENERATION COMPANY, LLC, the banks listed on the signature pages hereof,
BANK ONE, NA, as Administrative Agent, ABN AMRO BANK, N.V. and BARCLAYS BANK
PLC, as Co-Documentation Agents, and CITIBANK, N.A. and FIRST UNION NATIONAL
BANK, as Co-Syndication Agents hereby agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01 Certain Defined Terms. As used in this Agreement, each of the
following terms shall have the meaning set forth below (each such meaning to be
equally applicable to both the singular and plural forms of the term defined):
"Administrative Agent" means Bank One in its capacity as administrative
agent for the Lenders pursuant to Article VII, and not in its individual
capacity as a Lender, and any successor Administrative Agent appointed pursuant
to Section 7.06.
"Advance" means an advance by a Lender to a Borrower hereunder. An Advance
may be a Base Rate Advance or a Eurodollar Rate Advance, each of which shall be
a "Type" of Advance.
"Affiliate" means, as to any Person, any other Person that, directly or
indirectly, controls, is controlled by or is under common control with such
Person or is a director or officer of such Person.
"Agents" means the Administrative Agent, the Co-Documentation Agents and
the Co-Syndication Agents; and "Agent" means any one of the foregoing.
"Applicable Lending Office" means, with respect to each Lender, such
Lender's Domestic Lending Office in the case of a Base Rate Advance and such
Lender's Eurodollar Lending Office in the case of a Eurodollar Rate Advance.
"Applicable Margin" - see Schedule II.
"Assignment and Acceptance" means an assignment and acceptance entered
into by a Lender and an Eligible Assignee, and accepted by the Administrative
Agent, in substantially the form of Exhibit C hereto.
"Bank One" means Bank One, NA, a national banking association with its
main office in Chicago, Illinois.
"Base Rate" means, for any period, a fluctuating interest rate per annum
which rate per annum shall at all times be equal to the higher of:
1
(a) the Prime Rate; and
(b) the sum of 0.5% per annum plus the Federal Funds Rate in effect
from time to time.
"Base Rate Advance" means an Advance that bears interest as provided in
Section 2.06(a).
"Borrowers" means Exelon, ComEd, PECO and Genco; and "Borrower" means any
one of the foregoing.
"Borrowing" means a group of Advances to the same Borrower of the same
Type made, continued or converted on the same day by the Lenders ratably
according to their Pro Rata Shares and, in the case of a Borrowing of Eurodollar
Rate Advances, having the same Interest Period.
"Business Day" means a day on which banks are not required or authorized
to close in Philadelphia, Pennsylvania, Chicago, Illinois or New York, New York,
and, if the applicable Business Day relates to any Eurodollar Rate Advances, on
which dealings are carried on in the London interbank market.
"Closing Date" shall mean the date on which all conditions precedent to
the initial Credit Extension have been satisfied.
"Code" means the Internal Revenue Code of 1986, and the regulations
promulgated thereunder, in each case as amended, reformed or otherwise modified
from time to time.
"Co-Documentation Agent" means each of ABN AMRO Bank, N.V. and Barclays
Bank plc in its capacity as a co-documentation agent hereunder.
"Commitment" means, for any Lender, such Lender's commitment to make
Advances and participate in Facility LCs for the account of each Borrower
hereunder.
"Commitment Amount" means, for any Lender at any time, the amount set
forth opposite such Lender's name on the signature pages hereof or, if such
Lender has entered into any Assignment and Acceptance, set forth for such Lender
in the Register maintained by the Administrative Agent pursuant to Section
8.07(c), as such amount may be reduced pursuant to Section 2.04.
"Commitment Termination Date" means, with respect to any Borrower, the
earlier of (i) December 11, 2002 or such later date to which the scheduled
Commitment Termination Date may be extended pursuant to Section 2.17 (or, if any
such date is not a Business Day, the next preceding Business Day) or (ii) the
date of termination in whole of the Commitments to such Borrower pursuant to
Section 2.04 or 6.01.
"ComEd" means Commonwealth Edison Company, an Illinois corporation, or any
Eligible Successor thereof.
2
"ComEd Sublimit" means $300,000,000, subject to adjustment as provided in
Section 2.04(c).
"ComEd Mortgage" means the Mortgage, dated July 1, 1923, as amended and
supplemented by supplemental indentures, including the Supplemental Indenture,
dated August 1, 1944, from ComEd to Harris Trust and Savings Bank and D.G.
Donovan, as trustees; provided that no effect shall be given to any amendment,
supplement or refinancing after the date of this Agreement that would broaden
the definition of "permitted liens" as defined in the ComEd Mortgage as
constituted on the date of this Agreement.
"Consolidated Adjusted Total Capitalization" means, for any Borrower, the
sum, without duplication, of the following with respect to such Borrower and its
consolidated Subsidiaries determined on a consolidated basis (exclusive, in each
case, to the extent otherwise included in such item, of (i) Nonrecourse
Indebtedness of any Subsidiary of such Borrower and (ii) the aggregate principal
amount of Transitional Funding Instruments of such Borrower and its consolidated
Subsidiaries): (a) total capitalization as of such date, as determined in
accordance with GAAP without, in the case of PECO, giving effect to the
"Receivable from Parent" recorded as a debit to shareholders' equity on PECO's
books in connection with the corporate restructuring described in Exelon's Form
10-Q filed with the Securities and Exchange Commission on May 15, 2001, (b) the
current portion of liabilities which as of such date would be classified in
whole or part as long-term debt in accordance with GAAP (it being understood
that the noncurrent portion of such liabilities is included in the total
capitalization referred to in clause (a)), (c) all obligations as lessee which,
in accordance with GAAP, are capitalized as liabilities (including the current
portion thereof), and (d) all other liabilities which would be classified as
short-term debt in accordance with GAAP (including, without limitation, all
liabilities of the types classified as "Notes Payable, Bank" on the audited
balance sheets of PECO and Exelon for December 31, 2000).
"Consolidated Adjusted Total Debt" means, for any Borrower, the sum,
without duplication, of the following with respect to such Borrower and its
consolidated Subsidiaries determined on a consolidated basis (exclusive, in each
case, to the extent otherwise included in such item, of (i) Nonrecourse
Indebtedness of any Subsidiary of such Borrower, (ii) the aggregate principal
amount of Subordinated Deferrable Interest Securities of such Borrower and its
Subsidiaries and (iii) the aggregate principal amount of Transitional Funding
Instruments of such Borrower and its Subsidiaries): (a) all liabilities which as
of such date would be classified in whole or in part as long-term debt in
accordance with GAAP (including the current portion thereof), (b) all
obligations as lessee which, in accordance with GAAP, are capitalized as
liabilities (including the current portion thereof), and (c) all other
liabilities which would be classified as short-term debt in accordance with GAAP
(including, without limitation, all liabilities of the types classified as
"Notes Payable, Bank" on the audited balance sheets of PECO and Exelon for
December 31, 2000).
"Controlled Group" means all members of a controlled group of corporations
and all trades or businesses (whether or not incorporated) under common control
that, together with Exelon or any Subsidiary, are treated as a single employer
under Section 414(b) or 414(c) of the Code.
3
"Co-Syndication Agent" means each of Citibank, N.A. and First Union
National Bank in its capacity as co-syndication agent hereunder.
"Credit Extension" means the making of an Advance or the issuance or
modification of a Facility LC hereunder.
"Debt" means (i) indebtedness for borrowed money, (ii) obligations
evidenced by bonds, debentures, notes or other similar instruments (iii)
obligations to pay the deferred purchase price of property or services (other
than trade payables incurred in the ordinary course of business), (iv)
obligations as lessee under leases that shall have been or are required to be,
in accordance with GAAP, recorded as capital leases, (v) obligations (contingent
or otherwise) under reimbursement or similar agreements with respect to the
issuance of letters of credit (other than obligations in respect of documentary
letters of credit opened to provide for the payment of goods or services
purchased in the ordinary course of business) and (vi) obligations under direct
or indirect guaranties in respect of, and obligations (contingent or otherwise)
to purchase or otherwise acquire, or otherwise to assure a creditor against loss
in respect of, indebtedness or obligations of others of the kinds referred to in
clauses (i) through (v) above.
"Domestic Lending Office" means, with respect to any Lender, the office of
such Lender specified as its "Domestic Lending Office" opposite its name on
Schedule I hereto or in the Assignment and Acceptance pursuant to which it
became a Lender, or such other office of such Lender as such Lender may from
time to time specify to the Borrowers and the Administrative Agent.
"Eligible Assignee" means (i) a commercial bank organized under the laws
of the United States, or any State thereof; (ii) a commercial bank organized
under the laws of any other country that is a member of the OECD or has
concluded special lending arrangements with the International Monetary Fund
associated with its General Arrangements to Borrow, or a political subdivision
of any such country, provided that such bank is acting through a branch or
agency located in the United States; (iii) a finance company, insurance company
or other financial institution or fund (whether a corporation, partnership or
other entity) engaged generally in making, purchasing or otherwise investing in
commercial loans in the ordinary course of its business; or (iv) the central
bank of any country that is a member of the OECD; provided, however, that,
unless otherwise agreed by Exelon and the Administrative Agent in their sole
discretion, (A) any such Person described in clause (i), (ii) or (iii) above
shall also (x) have outstanding unsecured long-term debt that is rated BBB- or
better by S&P and Baa3 or better by Moody's (or an equivalent rating by another
nationally recognized credit rating agency of similar standing if either such
corporation is no longer in the business of rating unsecured indebtedness of
entities engaged in such businesses) and (y) have combined capital and surplus
(as established in its most recent report of condition to its primary regulator)
of not less than $100,000,000 (or its equivalent in foreign currency), and (B)
any Person described in clause (ii), (iii) or (iv) above shall, on the date on
which it is to become a Lender hereunder, be entitled to receive payments
hereunder without deduction or withholding of any United States Federal income
taxes (as contemplated by Section 2.14(e)).
"Eligible Successor" means a Person which (i) is a corporation, limited
liability company or business trust duly incorporated or organized, validly
existing and in good standing under the
4
laws of one of the states of the United States or the District of Columbia, (ii)
as a result of a contemplated acquisition, consolidation or merger, will succeed
to all or substantially all of the consolidated business and assets of a
Borrower and its Subsidiaries, (iii) upon giving effect to such contemplated
acquisition, consolidation or merger, will have all or substantially all of its
consolidated business and assets conducted and located in the United States and
(iv) is acceptable to the Majority Lenders as a credit matter.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations promulgated and rulings issued
thereunder, each as amended and modified from time to time.
"Eurocurrency Liabilities" has the meaning assigned to that term in
Regulation D of the Board of Governors of the Federal Reserve System, as in
effect from time to time.
"Eurodollar Lending Office" means, with respect to any Lender, the office
of such Lender specified as its "Eurodollar Lending Office" opposite its name on
Schedule I hereto or in the Assignment and Acceptance pursuant to which it
became a Lender (or, if no such office is specified, its Domestic Lending
Office), or such other office of such Lender as such Lender may from time to
time specify to the Borrowers and the Administrative Agent.
"Eurodollar Rate" means, for each Interest Period for each Eurodollar Rate
Advance made as part of a Borrowing, an interest rate per annum equal to the
average (rounded upward to the nearest whole multiple of 1/16 of 1% per annum,
if such average is not such a multiple) of the rates per annum at which deposits
in U.S. dollars are offered by the principal office of each of the Reference
Banks in London, England, to prime banks in the London interbank market at 11:00
A.M. (London time) two Business Days before the first day of such Interest
Period in an amount substantially equal to such Reference Bank's Eurodollar Rate
Advance made as part of such Borrowing and for a period equal to such Interest
Period. The Eurodollar Rate for each Interest Period for each Eurodollar Rate
Advance made as part of a Borrowing shall be determined by the Administrative
Agent on the basis of applicable rates furnished to and received by the
Administrative Agent from the Reference Banks two Business Days before the first
day of such Interest Period, subject, however, to the provisions of Section
2.08.
"Eurodollar Rate Advance" means any Advance that bears interest as
provided in Section 2.06(b).
"Eurodollar Rate Reserve Percentage" of any Lender for any Interest Period
means the reserve percentage applicable during such Interest Period (or if more
than one such percentage shall be so applicable, the daily average of such
percentages for those days in such Interest Period during which any such
percentage shall be so applicable) under regulations issued from time to time by
the Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement (including, without limitation, any
emergency, supplemental or other marginal reserve requirement) for such Lender
with respect to liabilities or assets consisting of or including Eurocurrency
Liabilities having a term equal to such Interest Period.
"Event of Default" - see Section 6.01.
5
"Exchange Act" means the Securities Exchange Act of 1934, as amended and
modified from time to time.
"Exelon" means Exelon Corporation, a Pennsylvania corporation, or any
Eligible Successor thereof.
"Exelon Sublimit" means $900,000,000, subject to adjustment as provided in
Section 2.04(c).
"Existing Agreement" means the 364-Day Credit Agreement dated as of
December 19, 2000 among Exelon, PECO, ComEd, various financial institutions and
Bank One, as Administrative Agent, as amended prior to the Closing Date.
"Facility Fee Rate" - see Schedule II.
"Facility LC" is defined in Section 2.16.1. "Facility LC Application" is
defined in Section 2.16.3.
"Federal Funds Rate" means, for any period, a fluctuating interest rate
per annum equal for each day during such period to the weighted average of the
rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day which is a Business Day, the average of the quotations for such day on such
transactions received by the Administrative Agent from three Federal funds
brokers of recognized standing selected by it.
"Final Termination Date" means, with respect to any Borrower, the earlier
of (i) the date on or after the Commitment Termination Date for such Borrower on
which all of such Borrower's obligations hereunder have been paid in full and
all Facility LC's issued for the account of such Borrower have expired or been
terminated and (ii) the date on which all of such Borrower's obligations
hereunder have become due and payable (pursuant to Section 6.01 or otherwise).
"GAAP" - see Section 1.03.
"Genco" means Exelon Generation Company, LLC, a Pennsylvania limited
liability company, or any Eligible Successor thereof.
"Genco Sublimit" means zero, subject to adjustment as provided in Section
2.04(c); provided that the Genco Sublimit may not be increased prior to the date
on which the conditions precedent to the initial Advance to Genco set forth in
Section 3.03 have been satisfied.
"Granting Bank" - see Section 8.07(h).
"Interest Period" means, for each Eurodollar Rate Advance, the period
commencing on the date of such Eurodollar Rate Advance is made or is converted
from a Base Rate Advance and
6
ending on the last day of the period selected by the applicable Borrower
pursuant to the provisions below and, thereafter, each subsequent period
commencing on the last day of the immediately preceding Interest Period and
ending on the last day of the period selected by such Borrower pursuant to the
provisions below. The duration of each such Interest Period shall be 1, 2, 3 or
6 months, as the applicable Borrower may select in accordance with Section 2.02
or 2.09; provided that:
(i) no Borrower may select any Interest Period that ends after
the scheduled Commitment Termination Date;
(ii) Interest Periods commencing on the same date for Advances
made as part of the same Borrowing shall be of the same duration;
(iii) whenever the last day of any Interest Period would
otherwise occur on a day other than a Business Day, the last day of
such Interest Period shall be extended to occur on the next
succeeding Business Day, unless such extension would cause the last
day of such Interest Period to occur in the next following calendar
month, in which case the last day of such Interest Period shall
occur on the next preceding Business Day; and
(iv) if there is no day in the appropriate calendar month at
the end of such Interest Period numerically corresponding to the
first day of such Interest Period, then such Interest Period shall
end on the last Business Day of such appropriate calendar month.
"LC Fee Rate" - see Schedule II.
"LC Issuer" means Bank One in its capacity as issuer of Facility LCs
hereunder.
"LC Obligations" means, with respect to any Borrower at any time, the sum,
without duplication, of (i) the aggregate undrawn stated amount under all
Facility LCs issued for the account of such Borrower outstanding at such time
plus (ii) the aggregate unpaid amount at such time of all Reimbursement
Obligations of such Borrower.
"LC Payment Date" is defined in Section 2.16.5.
"Lead Arranger" means Banc One Capital Markets in its capacity as Lead
Arranger and Sole Book Runner.
"Lenders" means each of the financial institutions listed on the signature
pages hereof and each Eligible Assignee that shall become a party hereto
pursuant to Section 8.07.
"Letter of Credit Sublimit" means $100,000,000.
"Lien" means any lien (statutory or other), mortgage, pledge, security
interest or other charge or encumbrance, or any other type of preferential
arrangement (including, without limitation, the interest of a vendor or lessor
under any conditional sale, capitalized lease or other title retention
agreement).
7
"Leverage Ratio" means, for any Borrower, the ratio of such Borrower's
Consolidated Adjusted Total Debt to such Borrower's Consolidated Adjusted Total
Capitalization.
"Majority Lenders" means Lenders having Pro Rata Shares of more than 50%
(provided that, for purposes of this definition, no Borrower nor any Affiliate
of a Borrower, if a Lender, shall be included in calculating the amount of any
Lender's Pro Rata Share or the amount of the Commitment Amounts or Outstanding
Credit Extensions, as applicable, required to constitute more than 50% of the
Pro Rata Shares).
"Material Adverse Change" and "Material Adverse Effect" each means,
relative to any occurrence, fact or circumstances of whatsoever nature
(including, without limitation, any determination in any litigation, arbitration
or governmental investigation or proceeding) with respect to any Borrower, (i)
any materially adverse change in, or materially adverse effect on, the financial
condition, operations, assets or business of such Borrower and its consolidated
Subsidiaries, taken as a whole, or (ii) any materially adverse effect on the
validity or enforceability against such Borrower of this Agreement or any
applicable Note.
"Material Subsidiary" means, with respect to Exelon, each of ComEd, PECO
and Genco and any holding company for any of the foregoing.
"Modify" and "Modification" are defined in Section 2.16.1.
"Moody's" means Moody's Investors Service, Inc.
"Moody's Rating" means, at any time for any Borrower, the rating issued by
Moody's and then in effect with respect to such Borrower's senior unsecured
long-term public debt securities without third-party credit enhancement (it
being understood that if such Borrower does not have any outstanding debt
securities of the type described above but has an indicative rating from Moody's
for debt securities of such type, then such indicative rating shall be used for
determining the "Moody's Rating").
"Multiemployer Plan" means a Plan maintained pursuant to a collective
bargaining agreement or any other arrangement to which Exelon or any other
member of the Controlled Group is a party to which more than one employer is
obligated to make contributions.
"Nonrecourse Indebtedness" means any Debt that finances the acquisition,
development, ownership or operation of an asset in respect of which the Person
to which such Debt is owed has no recourse whatsoever to any Borrower or any of
their respective Affiliates other than:
(i) recourse to the named obligor with respect to such Debt
(the "Debtor") for amounts limited to the cash flow or net cash flow
(other than historic cash flow) from the asset;
(ii) recourse to the Debtor for the purpose only of enabling
amounts to be claimed in respect of such Debt in an enforcement of
any security interest or lien given by the Debtor over the asset or
the income, cash flow or other proceeds deriving from the asset (or
given by any shareholder or the like in the Debtor over its shares
or like interest in the capital of the Debtor) to secure the Debt,
but only
8
if the extent of the recourse to the Debtor is limited solely to the
amount of any recoveries made on any such enforcement; and
(iii) recourse to the Debtor generally or indirectly to any
Affiliate of the Debtor, under any form of assurance, undertaking or
support, which recourse is limited to a claim for damages (other
than liquidated damages and damages required to be calculated in a
specified way) for a breach of an obligation (other than a payment
obligation or an obligation to comply or to procure compliance by
another with any financial ratios or other tests of financial
condition) by the Person against which such recourse is available.
"Note" means a promissory note of a Borrower payable to the order of a
Lender, in substantially the form of Exhibit A hereto, evidencing the aggregate
indebtedness of such Borrower to such Lender resulting from the Advances made by
such Lender to such Borrower.
"Notice of Borrowing" - see Section 2.02(a).
"OECD" means the Organization for Economic Cooperation and Development.
"Outstanding Credit Extensions" means, with respect to any Borrower, the
sum of the aggregate principal amount of all outstanding Advances to such
Borrower plus all LC Obligations of such Borrower.
"PBGC" means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
"PECO" means PECO Energy Company, a Pennsylvania corporation, or any
Eligible Successor thereof.
"PECO Mortgage" means the First and Refunding Mortgage, dated as of May 1,
1923, between The Counties Gas & Electric Company (to which PECO is successor)
and Fidelity Trust Company, Trustee (to which First Union National Bank is
successor), as amended, supplemented or refinanced from time to time, provided
that no effect shall be given to any amendment, supplement or refinancing after
the date of this Agreement that would broaden the definition of "excepted
encumbrances" as defined in the PECO Mortgage as constituted on the date of this
Agreement.
"PECO Sublimit" means $300,000,000, subject to adjustment as provided in
Section 2.04(c).
"Person" means an individual, partnership, corporation (including a
business trust), joint stock company, trust, unincorporated association, joint
venture, limited liability company or other entity, or a government or any
political subdivision or agency thereof.
"Plan" means an employee pension benefit plan that is covered by Title IV
of ERISA or subject to the minimum funding standards under Section 412 of the
Code as to which Exelon or any other member of the Controlled Group may have any
liability.
9
"Prime Rate" means a rate per annum equal to the prime rate of interest
announced by Bank One or by its parent, BANK ONE CORPORATION (which is not
necessarily the lowest rate charged to any customer), changing when and as said
prime rate changes.
"Principal Subsidiary" means, with respect to a Borrower, (i) each Utility
Subsidiary of such Borrower (other than Commonwealth Edison Company of Indiana,
Inc., so long as it does not qualify as a Principal Subsidiary under the
following clause (ii)) and (ii) each other Subsidiary of such Borrower the
assets of which exceeded $150,000,000 in book value at any time during the
preceding 24-month period.
"Pro Rata Share" means, with respect to a Lender, a portion equal to a
fraction the numerator of which is such Lender's Commitment Amount (plus, after
the Commitments have terminated with respect to any Borrower, the principal
amount of such Lender's outstanding Advances to such Borrower plus the amount of
such Lender's participation in all of such Borrower's LC Obligations) and the
denominator of which is the aggregate amount of the Commitment Amounts (plus,
after the Commitments have terminated with respect to any Borrower, the
principal amount of all outstanding Advances to such Borrower plus all LC
Obligations of such Borrower).
"Reference Banks" means Bank One, Citibank, N.A. and First Union National
Bank.
"Register" - see Section 8.07(c).
"Reimbursement Obligations" means, with respect to any Borrower at any
time, the aggregate of all obligations of such Borrower then outstanding under
Section 2.16 to reimburse the LC Issuer for amounts paid by the LC Issuer in
respect of any one or more drawings under Facility LCs.
"Reportable Event" means a reportable event as defined in Section 4043 of
ERISA and regulations issued under such section with respect to a Plan,
excluding, however, such events as to which the PBGC by regulation waived the
requirement of Section 4043(a) of ERISA that it be notified within 30 days of
the occurrence of such event, provided that a failure to meet the minimum
funding standard of Section 412 of the Code and Section 302 of ERISA shall be a
Reportable Event regardless of the issuance of any such waivers in accordance
with either Section 4043(a) of ERISA or Section 412(d) of the Code.
"S&P" means Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc.
"S&P Rating" means, at any time for any Borrower, the rating issued by S&P
and then in effect with respect to such Borrower's senior unsecured long-term
public debt securities without third-party credit enhancement (it being
understood that if such Borrower does not have any outstanding debt securities
of the type described above but has an indicative rating from S&P for debt
securities of such type, then such indicative rating shall be used for
determining the "S&P Rating").
"Single Employer Plan" means a Plan maintained by Exelon or any other
member of the Controlled Group for employees of Exelon or any other member of
the Controlled Group.
10
"SPC" - see Section 8.07(h).
"Special Purpose Subsidiary" means a direct or indirect wholly owned
Subsidiary of ComEd or PECO, substantially all of the assets of which are
"intangible transition property" (as defined in Section 18-102 of the Illinois
Public Utilities Law, as amended, or in 66 Pa. Cons. Stat. Ann. ss.2812(g) (West
Supp. 1997) or any successor provision of similar import), and proceeds thereof,
formed solely for the purpose of holding such assets and issuing such
Transitional Funding Instruments, and which complies with the requirements
customarily imposed on bankruptcy-remote corporations in receivables
securitizations.
"Sublimit" means the Exelon Sublimit, the ComEd Sublimit, the PECO
Sublimit or the Genco Sublimit.
"Subordinated Deferrable Interest Securities" means, with respect to any
Borrower, all obligations of such Borrower and its Subsidiaries, as set forth
from time to time in the consolidated balance sheets of such Borrower and its
Subsidiaries delivered pursuant to Section 5.01(b) hereof, in respect of
"Company Obligated Mandatorily Redeemable Preferred Securities of Subsidiary
Trusts holding solely the Company's Subordinated Debt Securities" or
"Company-Obligated Mandatorily Redeemable Preferred Securities of a Partnership,
which holds solely Subordinated Debentures of the Company."
"Subsidiary" means, with respect to any Person, any corporation or
unincorporated entity of which more than 50% of the outstanding capital stock
(or comparable interest) having ordinary voting power (irrespective of whether
or not at the time capital stock, or comparable interests, of any other class or
classes of such corporation or entity shall or might have voting power upon the
occurrence of any contingency) is at the time directly or indirectly owned by
such Person (whether directly or through one or more other Subsidiaries).
"Taxes" - see Section 2.14.
"Transitional Funding Instrument" means any instruments, pass-through
certificates, notes, debentures, certificates of participation, bonds,
certificates of beneficial interest or other evidences of indebtedness or
instruments evidencing a beneficial interest which (i) in the case of ComEd (A)
are issued pursuant to a "transitional funding order" (as such term is defined
in Section 18-102 of the Illinois Public Utilities Act, as amended) issued by
the Illinois Commerce Commission at the request of an electric utility and (B)
are secured by or otherwise payable from non-bypassable cent per kilowatt hour
charges authorized pursuant to such order to be applied and invoiced to
customers of such utility and (ii) in the case of PECO, are "transition bonds"
(as defined in 66 Pa. Cons. Stat. Ann. ss.2812(g) (West Supp. 1997), or any
successor provision of similar import), representing a securitization of
"intangible transition property" (as defined in the foregoing statute). The
instrument funding charges so applied and invoiced must be deducted and stated
separately from the other charges invoiced by such utility against its
customers.
"Type" - see the definition of Advance.
"Unfunded Liabilities" means, (i) in the case of any Single Employer Plan,
the amount (if any) by which the present value of all vested nonforfeitable
benefits under such Plan exceeds the fair market value of all Plan assets
allocable to such benefits, all determined as of the then most
11
recent evaluation date for such Plan, and (ii) in the case of any Multiemployer
Plan, the withdrawal liability that would be incurred by the Controlled Group if
all members of the Controlled Group completely withdrew from such Multiemployer
Plan.
"Unmatured Event of Default" means any event which (if it continues
uncured) will, with lapse of time or notice or both, became an Event of Default.
"Utility Subsidiary" means, with respect to a Borrower, each Subsidiary of
such Borrower that is engaged principally in the generation, transmission, or
distribution of electricity or gas and is subject to rate regulation as a public
utility by federal or state regulatory authorities.
"Utilization Fee Rate" - see Schedule II.
SECTION 1.02 Computation of Time Periods. In this Agreement in the
computation of periods of time from a specified date to a later specified date,
the word "from" means "from and including" and the words "to" and "until" each
means "to but excluding".
SECTION 1.03 Accounting Principles. (a) As used in this Agreement, "GAAP"
shall mean generally accepted accounting principles in the United States,
applied on a basis consistent with the principles used in preparing Exelon's
audited consolidated financial statements as of December 31, 2000 and for the
fiscal year then ended. In this Agreement, except to the extent, if any,
otherwise provided herein, all accounting and financial terms shall have the
meanings ascribed to such terms by GAAP, and all computations and determinations
as to accounting and financial matters shall be made in accordance with GAAP. In
the event that the financial statements generally prepared by any Borrower apply
accounting principles other than GAAP (including as a result of any event
described in Section 1.03(b)), the compliance certificate delivered pursuant to
Section 5.01(b)(iv) accompanying such financial statements shall include
information in reasonable detail reconciling such financial statements to GAAP
to the extent relevant to the calculations set forth in such compliance
certificate.
(b) If at any time any change in GAAP would affect the computation
of any financial ratio or requirement set forth herein and the applicable
Borrower or the Majority Lenders shall so request, the Administrative Agent, the
Lenders and such Borrower shall negotiate in good faith to amend such ratio or
requirement to preserve the original intent thereof in light of such change in
GAAP (subject to the approval of the Majority Lenders); provided that, until so
amended, such ratio or requirement shall continue to be computed in accordance
with GAAP prior to such change therein.
SECTION 1.04 Section References. Unless indicated otherwise, any section
reference herein refers to a section of this Agreement.
ARTICLE II
AMOUNTS AND TERMS OF THE COMMITMENTS
SECTION 2.01 Commitments. Each Lender severally agrees, on the terms and
conditions hereinafter set forth, to (a) make Advances to any Borrower and (b)
to participate in Facility LCs issued upon the request of any Borrower, in each
case from time to time during the
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period from the date hereof to the Commitment Termination Date for such
Borrower, in an aggregate amount not to exceed such Lender's Commitment Amount
as in effect from time to time; provided that (i) the aggregate principal amount
of all Advances by such Lender to any Borrower shall not exceed such Lender's
Pro Rata Share of the aggregate principal amount of all Advances to such
Borrower; (ii) such Lender's participation in Facility LCs issued for the
account of any Borrower shall not exceed such Lender's Pro Rata Share of all LC
Obligations of such Borrower; (iii) the Outstanding Credit Extensions to Exelon
shall not at any time exceed the Exelon Sublimit; (iv) the Outstanding Credit
Extensions to ComEd shall not any time exceed the ComEd Sublimit; (v) the
Outstanding Credit Extensions to PECO shall not at any time exceed the PECO
Sublimit; (vi) the Outstanding Credit Extensions to Genco shall not at any time
exceed the Genco Sublimit; and (vii) the LC Obligations of all Borrowers
collectively shall not at any time exceed the Letter of Credit Sublimit. Within
the foregoing limits, each Borrower may from time to time borrow, prepay
pursuant to Section 2.10 and reborrow hereunder prior to the Commitment
Termination Date for such Borrower.
SECTION 2.02 Procedures for Advances; Limitations on Borrowings.
(a) Any Borrower may request Advances hereunder by giving notice (a
"Notice of Borrowing") to the Administrative Agent (which shall promptly advise
each Lender of its receipt thereof) not later than 10:00 A.M. (Chicago time) on
the third Business Day prior to the date of any proposed borrowing of Eurodollar
Rate Advances and on the date of any proposed borrowing of Base Rate Advances.
Each Notice of Borrowing shall be sent by telecopier, confirmed immediately in
writing, and shall be in substantially the form of Exhibit B hereto, specifying
therein the Borrower which is requesting Advances and the requested (i) date of
borrowing (which shall be a Business Day), (ii) Type of Advances to be borrowed,
(iii) the aggregate amount of such Advances, and (iv) in the case of a borrowing
of Eurodollar Rate Advances, the initial Interest Period therefor. Each Lender
shall, before 12:00 noon (Chicago time) on the date of such borrowing, make
available for the account of its Applicable Lending Office to the Administrative
Agent at its address referred to in Section 8.02, in same day funds, such
Lender's ratable portion of the requested borrowing. After the Administrative
Agent's receipt of such funds and upon fulfillment of the applicable conditions
set forth in Article III, the Administrative Agent will make such funds
available to the applicable Borrower at the Administrative Agent's aforesaid
address.
(b) Each Notice of Borrowing shall be irrevocable and binding on the
applicable Borrower. If a Notice of Borrowing requests Eurodollar Rate Advances,
the applicable Borrower shall indemnify each Lender against any loss, cost or
expense incurred by such Lender as a result of any failure to fulfill on or
before the requested borrowing date the applicable conditions set forth in
Article III, including, without limitation, any loss, cost or expense incurred
by reason of the liquidation or reemployment of deposits or other funds acquired
by such Lender to fund the requested Advance to be made by such Lender.
(c) Unless the Administrative Agent shall have received notice from
a Lender prior to the date of any requested borrowing that such Lender will not
make available to the Administrative Agent such Lender's ratable portion of such
borrowing, the Administrative Agent may assume that such Lender has made such
portion available to the Administrative Agent on the requested borrowing date in
accordance with subsection (a) of this Section 2.02 and the
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Administrative Agent may, in reliance upon such assumption, make available to
the applicable Borrower on such date a corresponding amount. If and to the
extent that such Lender shall not have so made such ratable portion available to
the Administrative Agent, such Lender and such Borrower severally agree to repay
to the Administrative Agent forthwith on demand such corresponding amount
together with interest thereon, for each day from the date such amount is made
available to such Borrower until the date such amount is repaid to the
Administrative Agent, at (i) in the case of such Borrower, the interest rate
applicable at the time to Advances made in connection with such borrowing and
(ii) in the case of such Lender, the Federal Funds Rate. If such Lender shall
repay to the Administrative Agent such corresponding amount, such amount so
repaid shall constitute such Lender's Advance as part of such Borrowing for
purposes of this Agreement.
(d) The failure of any Lender to make the Advance to be made by it
on any borrowing date shall not relieve any other Lender of its obligation, if
any, hereunder to make its Advance on such date, but no Lender shall be
responsible for the failure of any other Lender to make any Advance to be made
by such other Lender.
(e) Each Borrowing of Base Rate Advances shall at all times be in an
aggregate amount not less than $5,000,000; and each Borrowing of Eurodollar Rate
Advances shall at all times be in an aggregate amount not less than $10,000,000.
Notwithstanding anything to the contrary contained herein, the Borrowers
collectively may not have more than 25 Borrowings of Eurodollar Rate Advances
outstanding at any time.
SECTION 2.03 Facility and Utilization Fees.
(a) Each Borrower agrees to pay to the Administrative Agent, for the
account of the Lenders according to their Pro Rata Shares, a facility fee for
the period from the Closing Date to the Commitment Termination Date for such
Borrower (or, if later, the date on which all Outstanding Credit Extensions to
such Borrower have been paid in full) in an amount equal to the Facility Fee
Rate for such Borrower multiplied by such Borrower's Sublimit (or, after the
Commitment Termination Date, the principal amount of all Outstanding Credit
Extensions to such Borrower), payable on the last day of each March, June,
September and December and on the Final Termination Date for such Borrower (and,
if applicable, thereafter on demand).
(b) Utilization Fee. Each Borrower agrees to pay to the
Administrative Agent, for the account of the Lenders according to their Pro Rata
Shares, a utilization fee for each day on which either (i) the Outstanding
Credit Extensions to all Borrowers exceed 33-1/3% of the aggregate amount of the
Commitment Amounts or (ii) such Borrower's Outstanding Credit Extensions exceed
33-1/3% of such Borrower's Sublimit, in each case in an amount equal to the
Utilization Fee Rate for such Borrower multiplied by such Borrower's Outstanding
Credit Extensions on such day, payable on the last day of each March, June,
September and December and on the Commitment Termination Date for such Borrower.
SECTION 2.04 Reduction of Commitment Amounts; Adjustment of Sublimits. (a)
Each Borrower shall have the right, upon at least two Business Days' notice to
the Administrative Agent, to ratably reduce the respective Commitment Amounts of
the Lenders in accordance with their Pro Rata Shares; provided that no Borrower
may reduce the Commitment Amounts by an
14
amount that is greater than the remainder of the amount of such Borrower's
Sublimit minus the Outstanding Credit Extensions to such Borrower; and provided,
further, that each partial reduction of the Commitment Amounts shall be in the
aggregate amount of $10,000,000 or an integral multiple thereof. Once reduced
pursuant to this Section 2.04, the Commitment Amounts may not be increased.
(b) Any Borrower shall have the right at any time such Borrower's
Sublimit has been reduced to zero, upon at least two Business Days' notice to
the Administrative Agent, to terminate the Commitment of each Lender with
respect to such Borrower in its entirety (but only if such Borrower concurrently
pays all of its obligations hereunder). Upon any such termination, such Borrower
shall cease to be a party hereto and shall no longer have any rights or
obligations hereunder (except under provisions hereof which by their terms would
survive any termination hereof).
(c) The Borrowers may from time to time so long as no Event of
Default or Unmatured Event of Default exists with respect to any Borrower, upon
not less than five Business Days' notice to the Administrative Agent (which
shall promptly notify each Lender), change their respective Sublimits; provided
that (i) the sum of the Sublimits shall at all times be equal to the aggregate
amount of the Commitment Amounts; and (ii) after giving effect to any adjustment
of the Sublimits, (A) each Sublimit shall be an integral multiple of $50,000,000
(except that one Sublimit may not be such an integral multiple if the aggregate
amount of the Commitment Amounts is not an integral multiple of $50,000,000);
(B) no Sublimit shall exceed $1,000,000,000; (C) the Outstanding Credit
Extensions to Exelon shall not exceed the Exelon Sublimit; (D) the Outstanding
Credit Extensions to ComEd shall not exceed the ComEd Sublimit; (E) the
Outstanding Credit Extensions to Genco shall not exceed the Genco Sublimit and
(F) the Outstanding Credit Extensions to PECO shall not exceed the PECO
Sublimit.
SECTION 2.05 Repayment of Advances. Each Borrower shall repay the
principal amount of all Advances made to it on or before the Commitment
Termination Date for such Borrower.
SECTION 2.06 Interest on Advances. Each Borrower shall pay interest on the
unpaid principal amount of each Advance made to it from the date of such Advance
until such principal amount shall be paid in full, at the following rates per
annum:
(a) At all times such Advance is a Base Rate Advance, a rate per
annum equal to the Base Rate in effect from time to time, payable quarterly on
the last day of each March, June, September and December and on the date such
Base Rate Advance is converted to a Eurodollar Rate Advance or paid in full.
(b) Subject to Section 2.07, at all times such Advance is a
Eurodollar Rate Advance, a rate per annum equal to the sum of the Eurodollar
Rate for each applicable Interest Period plus the Applicable Margin in effect
from time to time for such Borrower, payable on the last day of each Interest
Period for such Eurodollar Rate Advance (and, if any Interest Period for such
Advance is six months, on the day that is three months after the first day of
such Interest Period) or, if earlier, on the date such Eurodollar Rate Advance
is converted to a Base Rate Advance or paid in full.
15
SECTION 2.07 Additional Interest on Eurodollar Advances. Each Borrower
shall pay to each Lender, so long as such Lender shall be required under
regulations of the Board of Governors of the Federal Reserve System to maintain
reserves with respect to liabilities or assets consisting of or including
Eurocurrency Liabilities, additional interest on the unpaid principal amount of
each Eurodollar Rate Advance of such Lender made to such Borrower, from the date
of such Advance until such principal amount is paid in full or converted to a
Base Rate Advance, at an interest rate per annum equal to the remainder obtained
by subtracting (i) the Eurodollar Rate for each Interest Period for such Advance
from (ii) the rate obtained by dividing such Eurodollar Rate by a percentage
equal to 100% minus the Eurodollar Rate Reserve Percentage of such Lender for
such Interest Period, payable on each date on which interest is payable on such
Advance; provided that no Lender shall be entitled to demand such additional
interest more than 90 days following the last day of the Interest Period in
respect of which such demand is made; provided further, however, that the
foregoing proviso shall in no way limit the right of any Lender to demand or
receive such additional interest to the extent that such additional interest
relates to the retroactive application of the reserve requirements described
above if such demand is made within 90 days after the implementation of such
retroactive reserve requirements. Such additional interest shall be determined
by the applicable Lender and notified to the applicable Borrower through the
Administrative Agent, and such determination shall be conclusive and binding for
all purposes, absent manifest error.
SECTION 2.08 Interest Rate Determination. (a) Each Reference Bank agrees
to furnish to the Administrative Agent timely information for the purpose of
determining each Eurodollar Rate. If any one of the Reference Banks shall not
furnish such timely information to the Administrative Agent for the purpose of
determining any such interest rate, the Administrative Agent shall determine
such interest rate on the basis of timely information furnished by the remaining
Reference Banks.
(b) The Administrative Agent shall give prompt notice to the
applicable Borrower and the Lenders of each applicable interest rate determined
by the Administrative Agent for purposes of Section 2.06(a) or (b), and the
applicable rate, if any, furnished by each Reference Bank for the purpose of
determining each applicable interest rate under Section 2.06(b).
(c) If all of the Reference Banks fail to furnish timely information
to the Administrative Agent for determining the Eurodollar Rate for any
Eurodollar Rate Advances,
(i) the Administrative Agent shall forthwith notify the
applicable Borrower and the Lenders that the interest rate cannot be
determined for such Eurodollar Rate Advances,
(ii) each such Advance will automatically, on the last day of
the then existing Interest Period therefor, convert into a Base Rate
Advance (or if such Advance is then a Base Rate Advance, will
continue as a Base Rate Advance), and
(iii) the obligation of the Lenders to make, continue or
convert into Eurodollar Rate Advances shall be suspended until the
Administrative Agent shall
16
notify the applicable Borrower and the Lenders that the
circumstances causing such suspension no longer exist.
(d) If, with respect to any Eurodollar Rate Advances, the Majority
Lenders notify the Administrative Agent that the Eurodollar Rate for any
Interest Period for such Advances will not adequately reflect the cost to such
Majority Lenders of making, funding or maintaining their respective Eurodollar
Rate Advances for such Interest Period, the Administrative Agent shall forthwith
so notify the applicable Borrower and the Lenders, whereupon
(i) each Eurodollar Rate Advance will automatically, on the
last day of the then existing Interest Period therefor (unless
prepaid or converted to a Base Rate Advance prior to such day),
convert into a Base Rate Advance, and
(ii) the obligation of the Lenders to make, continue or
convert into Eurodollar Rate Advances shall be suspended until the
Administrative Agent shall notify the applicable Borrower and the
Lenders that the circumstances causing such suspension no longer
exist.
SECTION 2.09 Continuation and Conversion of Advances. (a) Any Borrower may
on any Business Day, upon notice given to the Administrative Agent not later
than 10:00 A.M. (Chicago time) on the third Business Day prior to the date of
any proposed continuation of or conversion into Eurodollar Rate Advances, and on
the date of any proposed conversion into Base Rate Advances, and subject to the
provisions of Sections 2.08 and 2.12, continue Eurodollar Rate Advances for a
new Interest Period or convert a Borrowing of Advances of one Type into Advances
of the other Type; provided, that any continuation of Eurodollar Rate Advances
or conversion of Eurodollar Rate Advances into Base Rate Advances shall be made
on, and only on, the last day of an Interest Period for such Eurodollar Rate
Advances, unless, in the case of such a conversion, such Borrower shall also
reimburse the Lenders pursuant to Section 8.04(b) on the date of such
conversion. Each such notice of a continuation or conversion shall, within the
restrictions specified above, specify (i) the date of such continuation or
conversion, (ii) the Advances to be continued or converted, and (iii) in the
case of continuation of or conversion into Eurodollar Rate Advances, the
duration of the Interest Period for such Advances.
(b) If a Borrower shall fail to select the Type of any Advance or
the duration of any Interest Period for any Borrowing of Eurodollar Rate
Advances in accordance with the provisions contained in the definition of
"Interest Period" in Section 1.01 and Section 2.09(a), the Administrative Agent
will forthwith so notify such Borrower and the Lenders and such Advances will
automatically, on the last day of the then existing Interest Period therefor,
convert into Base Rate Advances.
SECTION 2.10 Prepayments. Any Borrower may, upon notice to the
Administrative Agent at least three Business Days prior to any prepayment of
Eurodollar Rate Advances, or one Business Day's notice prior to any prepayment
of Base Rate Advances, in each case stating the proposed date and aggregate
principal amount of the prepayment, and if such notice is given that Borrower
shall, prepay the outstanding principal amounts of the Advances made as part of
the same Borrowing in whole or ratably in part, together with accrued interest
to the date of such prepayment on the principal amount prepaid; provided that
(i) each partial prepayment shall be in
17
an aggregate principal amount not less than $10,000,000 or a higher integral
multiple of $1,000,000 in the case of any prepayment of Eurodollar Rate Advances
and $5,000,000 or a higher integral multiple of $1,000,000 in the case of any
prepayment of Base Rate Advances, and (ii) in the case of any such prepayment of
a Eurodollar Rate Advance, such Borrower shall be obligated to reimburse the
Lenders pursuant to Section 8.04(b) on the date of such prepayment.
SECTION 2.11 Increased Costs. (a) If on or after the date of this
Agreement, any Lender or the LC Issuer determines that (i) the introduction of
or any change (other than, in the case of Eurodollar Rate Advances, any change
by way of imposition or increase of reserve requirements, included in the
Eurodollar Rate Reserve Percentage) in or in the interpretation of any law or
regulation or (ii) the compliance with any guideline or request from any central
bank or other governmental authority (whether or not having the force of law)
shall increase the cost to such Lender or the LC Issuer, as the case may be, of
agreeing to make or making, funding or maintaining Eurodollar Rate Advances or
of issuing or participating in any Facility LC, then the applicable Borrower
shall from time to time, upon demand by such Lender (with a copy of such demand
to the Administrative Agent) or the LC Issuer, as applicable, pay to the
Administrative Agent for the account of such Lender additional amounts (without
duplication of any amount payable pursuant to Section 2.14) sufficient to
compensate such Lender or the LC Issuer, as applicable, for such increased cost;
provided that no Lender shall be entitled to demand such compensation more than
90 days following the last day of the Interest Period in respect of which such
demand is made and the LC Issuer shall not be entitled to demand such
compensation more than 90 days following the expiration or termination (by a
drawing or otherwise) of the Facility LC in respect of which such demand is
made; provided further, however, that the foregoing proviso shall in no way
limit the right of any Lender or the LC Issuer to demand or receive such
compensation to the extent that such compensation relates to the retroactive
application of any law, regulation, guideline or request described in clause (i)
or (ii) above if such demand is made within 90 days after the implementation of
such retroactive law, interpretation, guideline or request. A certificate as to
the amount of such increased cost, submitted to the applicable Borrower and the
Administrative Agent by a Lender or the LC Issuer, shall be conclusive and
binding for all purposes, absent manifest error.
(b) If any Lender or the LC Issuer determines that, after the date
of this Agreement, compliance with any law or regulation or any guideline or
request from any central bank or other governmental authority (whether or not
having the force of law) regarding capital adequacy requirements affects or
would affect the amount of capital required or expected to be maintained by such
Lender or the LC Issuer or any Person controlling such Lender or the LC Issuer
(including, in any event, any determination after the date of this Agreement by
any such governmental authority or central bank that, for purposes of capital
adequacy requirements, any Lender's Commitment to a Borrower or the LC Issuer's
commitment to issue Facility LCs for the account of such Borrower as the case
may be does not constitute a commitment with an original maturity of less than
one year) and that the amount of such capital is increased by or based upon the
existence of such Lender's Commitment to such Borrower or the LC Issuer's
commitment to issue Facility LCs for the account of such Borrower, as
applicable, or the Advances made by such Lender to such Borrower or
Reimbursement Obligations owed to the LC Issuer by such Borrower, as the case
may be, then, upon demand by such Lender (with a copy of such demand to the
Administrative Agent) or the LC Issuer, as applicable, such Borrower shall
immediately pay to the Administrative Agent for the account of such Lender or LC
Issuer, as
18
applicable, from time to time as specified by such Lender or the LC Issuer, as
applicable, additional amounts sufficient to compensate such Lender, the LC
Issuer or such controlling Person, as applicable, in the light of such
circumstances, to the extent that such Lender determines such increase in
capital to be allocable to the existence of such Lender's Commitment to such
Borrower or the Advances made by such Lender to such Borrower or the LC Issuer
determines such increase in capital to be allocable to the LC Issuer's
commitment to issue Facility LCs for the account of such Borrower or the
Reimbursement Obligations owed by such Borrower to the LC Issuer; provided that
no Lender or the LC Issuer shall be entitled to demand such compensation more
than one year following the payment to or for the account of such Lender of all
other amounts payable hereunder by such Borrower and under any Note of such
Borrower held by such Lender and the termination of such Lender's Commitment to
such Borrower and the LC Issuer shall not be entitled to demand such
compensation more than one year after the expiration or termination (by drawing
or otherwise) of all Facility LCs issued for the account of such Borrower and
the termination of the LC Issuer's commitment to issue Facility LCs for the
account of such Borrower; provided further, however, that the foregoing proviso
shall in no way limit the right of any Lender or the LC Issuer to demand or
receive such compensation to the extent that such compensation relates to the
retroactive application of any law, regulation, guideline or request described
above if such demand is made within one year after the implementation of such
retroactive law, interpretation, guideline or request. A certificate as to such
amounts submitted to the applicable Borrower and the Administrative Agent by the
applicable Lender or the LC Issuer shall be conclusive and binding, for all
purposes, absent manifest error.
(c) Any Lender claiming compensation pursuant to this Section 2.11
shall use its best efforts (consistent with its internal policy and legal and
regulatory restrictions) to change the jurisdiction of its Applicable Lending
Office if the making of such a change would avoid the need for, or reduce the
amount of, any such compensation that may thereafter accrue and would not, in
the reasonable judgment of such Lender, be otherwise disadvantageous to such
Lender.
SECTION 2.12 Illegality. Notwithstanding any other provision of this
Agreement, if any Lender shall notify the Administrative Agent that the
introduction of or any change in or in the interpretation of any law or
regulation makes it unlawful, or any central bank or other governmental
authority asserts that it is unlawful, for such Lender or its Eurodollar Lending
Office to perform its obligations hereunder to make Eurodollar Rate Advances or
to fund or maintain Eurodollar Rate Advances hereunder, (i) the obligation of
such Lender to make, continue or convert Advances into Eurodollar Rate Advances
shall be suspended (subject to the following paragraph of this Section 2.12)
until the Administrative Agent shall notify the applicable Borrower and the
Lenders that the circumstances causing such suspension no longer exist and (ii)
all Eurodollar Rate Advances of such Lender then outstanding shall, on the last
day of the then applicable Interest Period (or such earlier date as such Lender
shall designate upon not less than five Business Days' prior written notice to
the Administrative Agent), be automatically converted into Base Rate Advances.
If the obligation of any Lender to make, continue or convert into
Eurodollar Rate Advances has been suspended pursuant to the preceding paragraph,
then, unless and until the Administrative Agent shall notify the applicable
Borrower and the Lenders that the circumstances causing such suspension no
longer exist, (i) all Advances that would otherwise be
19
made by such Lender as Eurodollar Rate Advances shall instead be made as Base
Rate Advances and (ii) to the extent that Eurodollar Rate Advances of such
Lender have been converted into Base Rate Advances pursuant to the preceding
paragraph or made instead as Base Rate Advances pursuant to the preceding clause
(i), all payments and prepayments of principal that would have otherwise been
applied to such Eurodollar Rate Advances of such Lender shall be applied instead
to such Base Rate Advances of such Lender.
SECTION 2.13 Payments and Computations. (a) Each Borrower shall make each
payment hereunder and under any Note issued by such Borrower not later than
10:00 A.M. (Chicago time) on the day when due in U.S. dollars to the
Administrative Agent at its address referred to in Section 8.02 in same day
funds without setoff, counterclaim or other deduction. The Administrative Agent
will promptly thereafter cause to be distributed like funds relating to the
payment of principal, interest, facility fees, utilization fees and letter of
credit fees ratably (other than amounts payable pursuant to Section 2.02(b),
2.07, 2.11, 2.14 or 8.04(b)) to the Lenders for the account of their respective
Applicable Lending Offices, and like funds relating to the payment of any other
amount payable to any Lender to such Lender for the account of its Applicable
Lending Office, in each case to be applied in accordance with the terms of this
Agreement. Upon its acceptance of an Assignment and Acceptance and recording of
the information contained therein in the Register pursuant to Section 8.07(d),
from and after the effective date specified in such Assignment and Acceptance,
the Administrative Agent shall make all payments hereunder and under the Notes
in respect of the interest assigned thereby to the Lender assignee thereunder,
and the parties to such Assignment and Acceptance shall make all appropriate
adjustments in such payments for periods prior to such effective date directly
between themselves.
(b) Each Borrower hereby authorizes each Lender, if and to the
extent any payment owed to such Lender by such Borrower is not made when due
hereunder, to charge from time to time against any or all of such Borrower's
accounts with such Lender any amount so due.
(c) All computations of interest based on the Prime Rate shall be
made by the Administrative Agent on the basis of a year of 365 or 366 days, as
the case may be, and all computations of interest based on the Eurodollar Rate
or the Federal Funds Rate and of fees shall be made by the Administrative Agent,
and all computations of interest pursuant to Section 2.07 shall be made by a
Lender, on the basis of a year of 360 days, in each case for the actual number
of days (including the first day but excluding the last day) occurring in the
period for which such interest or fees are payable. Each determination by the
Administrative Agent (or, in the case of Section 2.07, by a Lender) of an
interest rate hereunder shall be conclusive and binding for all purposes, absent
manifest error.
(d) Whenever any payment hereunder or under the Notes shall be
stated to be due on a day other than a Business Day, such payment shall be made
on the next succeeding Business Day, and such extension of time shall in such
case be included in the computation of any interest or fees, as the case may be;
provided that if such extension would cause payment of interest on or principal
of a Eurodollar Rate Advance to be made in the next following calendar month,
such payment shall be made on the next preceding Business Day.
20
(e) Unless the Administrative Agent shall have received notice from
a Borrower prior to the date on which any payment is due by such Borrower to the
Lenders hereunder that such Borrower will not make such payment in full, the
Administrative Agent may assume that such Borrower has made such payment in full
to the Administrative Agent on such date and the Administrative Agent may, in
reliance upon such assumption, cause to be distributed to each Lender on such
due date an amount equal to the amount then due such Lender. If and to the
extent that such Borrower shall not have so made such payment in full to the
Administrative Agent, each Lender shall repay to the Administrative Agent
forthwith on demand such amount distributed to such Lender together with
interest thereon, for each day from the date such amount is distributed to such
Lender until the date such Lender repays such amount to the Administrative
Agent, at the Federal Funds Rate.
(f) Notwithstanding anything to the contrary contained herein, any
amount payable by a Borrower hereunder that is not paid when due (whether at
stated maturity, by acceleration or otherwise) shall (to the fullest extent
permitted by law) bear interest from the date when due until paid in full at a
rate per annum equal at all times to the Base Rate plus 2%, payable upon demand.
SECTION 2.14 Taxes. (a) Any and all payments by any Borrower hereunder or
under any Note issued by such Borrower shall be made, in accordance with Section
2.13, free and clear of and without deduction for any and all present or future
taxes, levies, imposts, deductions, charges or withholdings, and all liabilities
with respect thereto, excluding, in the case of each Lender, the LC Issuer and
the Administrative Agent, taxes imposed on its income, and franchise taxes
imposed on it, by the jurisdiction under the laws of which such Lender, the LC
Issuer or the Administrative Agent (as the case may be) is organized or any
political subdivision thereof and, in the case of each Lender, taxes imposed on
its income, and franchise taxes imposed on it, by the jurisdiction of such
Lender's Applicable Lending Office or any political subdivision thereof (all
such non-excluded taxes, levies, imposts, deductions, charges, withholdings and
liabilities being hereinafter referred to as "Taxes"). If a Borrower shall be
required by law to deduct any Taxes from or in respect of any sum payable
hereunder or under any Note issued by such Borrower to any Lender, the LC Issuer
or the Administrative Agent, (i) the sum payable shall be increased as may be
necessary so that after making all required deductions (including deductions
applicable to additional sums payable under this Section 2.14) such Lender, the
LC Issuer or the Administrative Agent (as the case may be) receives an amount
equal to the sum it would have received had no such deductions been made, (ii)
such Borrower shall make such deductions and (iii) such Borrower shall pay the
full amount deducted to the relevant taxation authority or other authority in
accordance with applicable law.
(b) In addition, each Borrower severally agrees to pay any present
or future stamp or documentary taxes or any other excise or property taxes,
charges or similar levies to the extent arising from the execution, delivery or
registration of this Agreement or the Notes (hereinafter referred to as "Other
Taxes"), in each case to the extent attributable to such Borrower; it being
understood that to the extent any Other Taxes so payable are not attributable to
any particular Borrower, each Borrower shall pay its proportionate share thereof
according to the amounts of the Borrowers' respective Sublimits at the time such
Other Taxes arose.
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(c) No Lender may claim or demand payment or reimbursement in
respect of any Taxes or Other Taxes pursuant to this Section 2.14 if such Taxes
or Other Taxes, as the case may be, were imposed solely as the result of a
voluntary change in the location of the jurisdiction of such Lender's Applicable
Lending Office.
(d) Each Borrower will indemnify each Lender, the LC Issuer and the
Administrative Agent for the full amount of Taxes or Other Taxes (including,
without limitation, any Taxes or Other Taxes imposed by any jurisdiction on
amounts payable under this Section 2.14) paid by such Lender, the LC Issuer or
the Administrative Agent (as the case may be) and any liability (including
penalties, interest and expenses) arising therefrom or with respect thereto,
whether or not such Taxes or Other Taxes were correctly or legally asserted, in
each case to the extent attributable to such Borrower; it being understood that
to the extent any Taxes, Other Taxes or other liabilities described above are
not attributable to a particular Borrower, each Borrower shall pay its
proportionate share thereof according to the amounts of the Borrowers'
respective Sublimits at the time such Taxes, Other Taxes or other liability
arose. This indemnification shall be made within 30 days from the date such
Lender, the LC Issuer or the Administrative Agent (as the case may be) makes
written demand therefor.
(e) Prior to the date of an initial borrowing hereunder in the case
of each Lender listed on the signature pages hereof, and on the date of the
Assignment and Acceptance pursuant to which it became a Lender in the case of
each other Lender, and from time to time thereafter within 30 days from the date
of request if requested by any Borrower or the Administrative Agent, each Lender
organized under the laws of a jurisdiction outside the United States shall
provide the Administrative Agent and each Borrower with the forms prescribed by
the Internal Revenue Service of the United States certifying that such Lender is
exempt from United States withholding taxes with respect to all payments to be
made to such Lender hereunder and under the Notes. If for any reason during the
term of this Agreement, any Lender becomes unable to submit the forms referred
to above or the information or representations contained therein are no longer
accurate in any material respect, such Lender shall notify the Administrative
Agent and the Borrowers in writing to that effect. Unless the Borrowers and the
Administrative Agent have received forms or other documents satisfactory to them
indicating that payments hereunder or under any Note are not subject to United
States withholding tax, the Borrowers or the Administrative Agent shall withhold
taxes from such payments at the applicable statutory rate in the case of
payments to or for any Lender organized under the laws of a jurisdiction outside
the United States and no Lender may claim or demand payment or reimbursement for
such withheld taxes pursuant to this Section 2.14.
(f) Any Lender claiming any additional amounts payable pursuant to
this Section 2.14 shall use its best efforts (consistent with its internal
policy and legal and regulatory restrictions) to change the jurisdiction of its
Applicable Lending Office if the making of such a change would avoid the need
for, or reduce the amount of, any such additional amounts which may thereafter
accrue and would not, in the reasonable judgment of such Lender, be otherwise
disadvantageous to such Lender.
(g) If a Borrower makes any additional payment to any Lender
pursuant to this Section 2.14 in respect of any Taxes or Other Taxes, and such
Lender determines that it has received (i) a refund of such Taxes or Other Taxes
or (ii) a credit against or relief or remission
22
for, or a reduction in the amount of, any tax or other governmental charge
attributable solely to any deduction or credit for any Taxes or Other Taxes with
respect to which it has received payments under this Section 2.14, such Lender
shall, to the extent that it can do so without prejudice to the retention of
such refund, credit, relief, remission or reduction, pay to such Borrower such
amount as such Lender shall have determined to be attributable to the deduction
or withholding of such Taxes or Other Taxes. If, within one year after the
payment of any such amount to such Borrower, such Lender determines that it was
not entitled to such refund, credit, relief, remission or reduction to the full
extent of any payment made pursuant to the first sentence of this Section
2.14(g), such Borrower shall upon notice and demand of such Lender promptly
repay the amount of such overpayment. Any determination made by a Lender
pursuant to this Section 2.14(g) shall in the absence of bad faith or manifest
error be conclusive, and nothing in this Section 2.14(g) shall be construed as
requiring any Lender to conduct its business or to arrange or alter in any
respect its tax or financial affairs (except as required by Section 2.14(f)) so
that it is entitled to receive such a refund, credit or reduction or as allowing
any Person to inspect any records, including tax returns, of such Lender.
(h) Without prejudice to the survival of any other agreement of any
Borrower or any Lender hereunder, the agreements and obligations of the
Borrowers and the Lenders contained in this Section 2.14 shall survive the
payment in full of principal and interest hereunder and under the Notes;
provided that no Lender shall be entitled to demand any payment from a Borrower
under this Section 2.14 more than one year following the payment to or for the
account of such Lender of all other amounts payable by such Borrower hereunder
and under any Note issued by such Borrower to such Lender and the termination of
such Lender's Commitment to such Borrower; provided further, however, that the
foregoing proviso shall in no way limit the right of any Lender to demand or
receive any payment under this Section 2.14 to the extent that such payment
relates to the retroactive application of any Taxes or Other Taxes if such
demand is made within one year after the implementation of such Taxes or Other
Taxes.
SECTION 2.15 Sharing of Payments, Etc. If any Lender shall obtain any
payment (whether voluntary, involuntary, through the exercise of any right of
set-off, or otherwise) on account of the Advances made by it to any Borrower or
its participation interest in any Facility LC issued for the account of any
Borrower (other than pursuant to Section 2.02(b), 2.07, 2.11, 2.14 or 8.04(b))
in excess of its ratable share of payments on account of the Advances to such
Borrower and Facility LCs issued for the account of such Borrower obtained by
all Lenders, such Lender shall forthwith purchase from the other Lenders such
participations in the Advances made by them to such Borrower and/or LC
Obligations of such Borrower as shall be necessary to cause such purchasing
Lender to share the excess payment ratably with each of them, provided, that if
all or any portion of such excess payment is thereafter recovered from such
purchasing Lender, such purchase from each Lender shall be rescinded and such
Lender shall repay to the purchasing Lender the purchase price to the extent of
such recovery together with an amount equal to such Lender's ratable share
(according to the proportion of (i) the amount of such Lender's required
repayment to (ii) the total amount so recovered from the purchasing Lender) of
any interest or other amount paid or payable by the purchasing Lender in respect
of the total amount so recovered. The Borrowers agree that any Lender so
purchasing a participation from another Lender pursuant to this Section 2.15
may, to the fullest extent permitted by law, exercise all its rights of payment
(including the right of set-off) with respect to such participation as fully
23
as if such Lender were the direct creditor of the applicable Borrower in the
amount of such participation.
SECTION 2.16 Facility LCs.
SECTION 2.16.1 Issuance. The LC Issuer hereby agrees, on the terms
and conditions set forth in this Agreement (including the limitations set
forth in Section 2.01), upon the request of any Borrower, to issue standby
letters of credit (each a "Facility LC") and to renew, extend, increase,
decrease or otherwise modify Facility LCs ("Modify," and each such action
a "Modification") for such Borrower, from time to time from and including
the date of this Agreement and prior to the Commitment Termination Date
for such Borrower. No Facility LC shall have an expiry date later than the
earlier of (a) 364 days after the date of issuance, or of extension or
renewal, thereof or (b) 360 days after the scheduled Commitment
Termination Date. No Facility LC may be renewed or extended, or increased
in amount, after the Commitment Termination Date.
SECTION 2.16.2 Participations. Upon the issuance or Modification by
the LC Issuer of a Facility LC in accordance with this Section 2.16, the
LC Issuer shall be deemed, without further action by any party hereto, to
have unconditionally and irrevocably sold to each Lender, and each Lender
shall be deemed, without further action by any party hereto, to have
unconditionally and irrevocably purchased from the LC Issuer, a
participation in such Facility LC (and each Modification thereof) and the
related LC Obligations in proportion to its Pro Rata Share.
SECTION 2.16.3 Notice. Subject to Section 2.16.1, the applicable
Borrower shall give the LC Issuer notice prior to 10:00 A.M. (Chicago
time) at least five Business Days prior to the proposed date of issuance
or Modification of each Facility LC, specifying the beneficiary, the
proposed date of issuance (or Modification) and the expiry date of such
Facility LC, and describing the proposed terms of such Facility LC and the
nature of the transactions proposed to be supported thereby. Upon receipt
of such notice, the LC Issuer shall promptly notify the Administrative
Agent, and the Administrative Agent shall promptly notify each Lender, of
the contents thereof and of the amount of such Lender's participation in
such proposed Facility LC. The issuance or Modification by the LC Issuer
of any Facility LC shall, in addition to the applicable conditions
precedent set forth in Article III (the satisfaction of which the LC
Issuer shall have no duty to ascertain), be subject to the conditions
precedent that such Facility LC shall be satisfactory to the LC Issuer and
that the applicable Borrower shall have executed and delivered such
application agreement and/or such other instruments and agreements
relating to such Facility LC as the LC Issuer shall have reasonably
requested (each a "Facility LC Application"). In the event of any conflict
between the terms of this Agreement and the terms of any Facility LC
Application, the terms of this Agreement shall control.
SECTION 2.16.4 LC Fees. Each Borrower shall pay to the Agent, for
the account of the Lenders ratably in accordance with their respective Pro
Rata Shares, with respect to each Facility LC issued for the account of
such Borrower, a letter of credit fee at a per annum rate equal to the LC
Fee Rate to such Borrower in effect from time to time on the average daily
undrawn stated amount under such Facility LC, such fee to be payable in
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arrears on the last day of each March, June, September and December and on
the Final Termination Date for such Borrower (and thereafter on demand).
Each Borrower shall also pay to the LC Issuer for its own account (x) a
fronting fee in an amount and at the times agreed upon between the LC
Issuer and such Borrower and (y) documentary and processing charges in
connection with the issuance or Modification of and draws under Facility
LCs in accordance with the LC Issuer's standard schedule for such charges
as in effect from time to time.
SECTION 2.16.5 Administration; Reimbursement by Lenders. Upon
receipt from the beneficiary of any Facility LC of any demand for payment
under such Facility LC, the LC Issuer shall notify the Administrative
Agent and the Administrative Agent shall promptly notify the applicable
Borrower and each Lender as to the amount to be paid by the LC Issuer as a
result of such demand and the proposed payment date (the "LC Payment
Date"). The responsibility of the LC Issuer to the applicable Borrower and
each Lender shall be only to determine that the documents (including each
demand for payment) delivered under each Facility LC in connection with
such presentment shall be in conformity in all material respects with such
Facility LC. The LC Issuer shall endeavor to exercise the same care in the
issuance and administration of the Facility LCs as it does with respect to
letters of credit in which no participations are granted, it being
understood that in the absence of any gross negligence or willful
misconduct by the LC Issuer, each Lender shall be unconditionally and
irrevocably liable, without regard to the occurrence of the Commitment
Termination Date or the Final Termination Date for the applicable
Borrower, the occurrence of any Event of Default or Unmatured Event of
Default or any condition precedent whatsoever, to reimburse the LC Issuer
on demand for (i) such Lender's Pro Rata Share of the amount of each
payment made by the LC Issuer under each Facility LC to the extent such
amount is not reimbursed by the applicable Borrower pursuant to Section
2.16.6 below, plus (ii) interest on the foregoing amount to be reimbursed
by such Lender, for each day from the date of the LC Issuer's demand for
such reimbursement (or, if such demand is made after 11:00 A.M. (Chicago
time) on such day, from the next succeeding Business Day) to the date on
which such Lender pays the amount to be reimbursed by it, at a rate of
interest per annum equal to the Federal Funds Rate for the first three
days and, thereafter, at the Base Rate.
SECTION 2.16.6 Reimbursement by Borrowers. Each Borrower shall be
irrevocably and unconditionally obligated to reimburse the LC Issuer on or
before the applicable LC Payment Date for any amount to be paid by the LC
Issuer upon any drawing under any Facility LC issued for the account of
such Borrower, without presentment, demand, protest or other formalities
of any kind; provided that neither the applicable Borrower nor any Lender
shall hereby be precluded from asserting any claim for direct (but not
consequential) damages suffered by such Borrower or such Lender to the
extent, but only to the extent, caused by (i) the willful misconduct or
gross negligence of the LC Issuer in determining whether a request
presented under any Facility LC complied with the terms of such Facility
LC or (ii) the LC Issuer's failure to pay under any Facility LC after the
presentation to it of a request strictly complying with the terms and
conditions of such Facility LC. All such amounts paid by the LC Issuer and
remaining unpaid by the applicable Borrower shall bear interest, payable
on demand, for each day until paid at a rate per annum equal to the Base
Rate plus 2%. The LC Issuer
25
will pay to each Lender ratably in accordance with its Pro Rata Share all
amounts received by it from any Borrower for application in payment, in
whole or in part, of the Reimbursement Obligation in respect of any
Facility LC issued by the LC Issuer, but only to the extent such Lender
has made payment to the LC Issuer in respect of such Facility LC pursuant
to Section 2.16.5. So long as the Commitment Termination Date has not
occurred with respect to a Borrower, but subject to the terms and
conditions of this Agreement (including the submission of a Notice of
Borrowing in compliance with Section 2.02 and the satisfaction of the
applicable conditions precedent set forth in Article III), such Borrower
may request Advances hereunder for the purpose of satisfying any
Reimbursement Obligation.
SECTION 2.16.7 Obligations Absolute. Each Borrower's obligations
under this Section 2.16 shall be absolute and unconditional under any and
all circumstances and irrespective of any setoff, counterclaim or defense
to payment which such Borrower may have against the LC Issuer, any Lender
or any beneficiary of a Facility LC. Each Borrower agrees with the LC
Issuer and the Lenders that the LC Issuer and the Lenders shall not be
responsible for, and such Borrower's Reimbursement Obligation in respect
of any Facility LC issued for its account shall not be affected by, among
other things, the validity or genuineness of documents or of any
endorsements thereon, even if such documents should in fact prove to be in
any or all respects invalid, fraudulent or forged, or any dispute between
or among such Borrower, any of its Affiliates, the beneficiary of any
Facility LC or any financing institution or other party to whom any
Facility LC may be transferred or any claims or defenses whatsoever of
such Borrower or of any of its Affiliates against the beneficiary of any
Facility LC or any such transferee. The LC Issuer shall not be liable for
any error, omission, interruption or delay in transmission, dispatch or
delivery of any message or advice, however transmitted, in connection with
any Facility LC. Each Borrower agrees that any action taken or omitted by
the LC Issuer or any Lender under or in connection with any Facility LC
issued for the account of such Borrower and the related drafts and
documents, if done without gross negligence or willful misconduct, shall
be binding upon such Borrower and shall not put the LC Issuer or any
Lender under any liability to such Borrower. Nothing in this Section
2.16.7 is intended to limit the right of any Borrower to make a claim
against the LC Issuer for damages as contemplated by the proviso to the
first sentence of Section 2.16.6.
SECTION 2.16.8 Actions of LC Issuer. The LC Issuer shall be entitled
to rely, and shall be fully protected in relying, upon any Facility LC,
draft, writing, resolution, notice, consent, certificate, affidavit,
letter, cablegram, telegram, telecopy, telex or teletype message,
statement, order or other document believed by it to be genuine and
correct and to have been signed, sent or made by the proper Person or
Persons, and upon advice and statements of legal counsel, independent
accountants and other experts selected by the LC Issuer. The LC Issuer
shall be fully justified in failing or refusing to take any action under
this Agreement unless it shall first have received such advice or
concurrence of the Majority Lenders as it reasonably deems appropriate or
it shall first be indemnified to its reasonable satisfaction by the
Lenders against any and all liability and expense which may be incurred by
it by reason of taking or continuing to take any such action.
Notwithstanding any other provision of this Section 2.16, the LC Issuer
shall in all cases be fully protected in acting, or in refraining from
acting, under this Agreement
26
in accordance with a request of the Majority Lenders, and such request and
any action taken or failure to act pursuant thereto shall be binding upon
the Lenders and any future holder of a participation in any Facility LC.
SECTION 2.16.9 Indemnification. Each Borrower hereby agrees to
indemnify and hold harmless each Lender, the LC Issuer and the Agent, and
their respective directors, officers, agents and employees, from and
against any and all claims and damages, losses, liabilities, costs or
expenses which such Lender, the LC Issuer or the Agent may incur (or which
may be claimed against such Lender, the LC Issuer or the Agent by any
Person whatsoever) by reason of or in connection with the issuance,
execution and delivery or transfer of or payment or failure to pay under
any Facility LC issued for the account of such Borrower or any actual or
proposed use of any such Facility LC, including, without limitation, any
claims, damages, losses, liabilities, costs or expenses which the LC
Issuer may incur by reason of or in connection with (i) the failure of any
other Lender to fulfill or comply with its obligations to the LC Issuer
hereunder (but nothing herein contained shall affect any right such
Borrower may have against any defaulting Lender) or (ii) by reason of or
on account of the LC Issuer issuing any such Facility LC which specifies
that the term "Beneficiary" included therein includes any successor by
operation of law of the named Beneficiary, but which Facility LC does not
require that any drawing by any such successor Beneficiary be accompanied
by a copy of a legal document, satisfactory to the LC Issuer, evidencing
the appointment of such successor Beneficiary; provided that no Borrower
shall be required to indemnify any Lender, the LC Issuer or the Agent for
any claims, damages, losses, liabilities, costs or expenses to the extent,
but only to the extent, caused by (x) the willful misconduct or gross
negligence of the LC Issuer in determining whether a request presented
under any Facility LC complied with the terms of such Facility LC or (y)
the LC Issuer's failure to pay under any Facility LC after the
presentation to it of a request strictly complying with the terms and
conditions of such Facility LC. Nothing in this Section 2.16.9 is intended
to limit the obligations of any Borrower under any other provision of this
Agreement.
SECTION 2.16.10 Lenders' Indemnification. Each Lender shall, ratably
in accordance with its Pro Rata Share, indemnify the LC Issuer, its
affiliates and their respective directors, officers, agents and employees
(to the extent not reimbursed by the Borrower) against any cost, expense
(including reasonable counsel fees and disbursements), claim, demand,
action, loss or liability (except such as result from such indemnitees'
gross negligence or willful misconduct or the LC Issuer's failure to pay
under any Facility LC after the presentation to it of a request strictly
complying with the terms and conditions of the Facility LC) that such
indemnitees may suffer or incur in connection with this Section 2.16 or
any action taken or omitted by such indemnitees hereunder.
SECTION 2.16.11 Rights as a Lender. In its capacity as a Lender, the
LC Issuer shall have the same rights and obligations as any other Lender.
SECTION 2.17 Extension of Commitment Termination Date. Exelon may request
an extension of the scheduled Commitment Termination Date for all Borrowers by
submitting a request for an extension to the Administrative Agent (an "Extension
Request") no more than 60
27
days prior to the scheduled Commitment Termination Date then in effect. The
Extension Request must specify the new scheduled Commitment Termination Date
requested by Exelon and the date (which must be at least 30 days after the
Extension Request is delivered to the Administrative Agent) as of which the
Lenders must respond to the Extension Request (the "Response Date"). The new
scheduled Commitment Termination Date shall be 364 days after the scheduled
Commitment Termination Date in effect at the time an Extension Request is
received, including the scheduled Commitment Termination Date as one of the days
in the calculation of the days elapsed. Promptly upon receipt of an Extension
Request, the Administrative Agent shall notify each Lender of the contents
thereof and shall request each Lender to approve such Extension Request, which
approval shall be at the sole discretion of each Lender. Each Lender approving
such Extension Request shall deliver its written consent no later than the
Response Date. If the written consent of each of the Lenders (excluding any
Person which ceases to be a Lender pursuant to Section 8.07(g)(iii)) is received
by the Administrative Agent, the new scheduled Commitment Termination Date
specified in the Extension Request shall become effective on the existing
scheduled Commitment Termination Date and the Administrative Agent shall
promptly notify each Borrower and each Lender of the new scheduled Commitment
Termination Date. If all Lenders (including any Person which becomes a Lender
pursuant to Section 8.07(g)) do not consent to an Extension Request, the
scheduled Commitment Termination Date shall not be extended pursuant to such
Extension Request.
ARTICLE III
CONDITIONS TO CREDIT EXTENSIONS
SECTION 3.01 Conditions Precedent to Initial Credit Extensions. No Lender
shall be obligated to make any Advance, and the LC Issuer shall not be obligated
to issue any Facility LC, unless the Administrative Agent shall have received
(a) evidence, satisfactory to the Administrative Agent, that the Borrowers have
paid (or will pay with the proceeds of the initial Credit Extensions) all
amounts then payable under the Existing Agreement and (b) each of the following
documents, each dated the date of the initial Credit Extension (or an earlier
date satisfactory to the Administrative Agent), in form and substance
satisfactory to the Administrative Agent and each (except for the Notes) in
sufficient copies to provide one for each Lender:
(i) The Notes payable to the order of each of the Lenders,
respectively;
(ii) Certified copies of resolutions of the Board of Directors
or equivalent managing body of each Borrower approving the
transactions contemplated by this Agreement and the Notes and of all
documents evidencing other necessary organizational action of such
Borrower with respect to this Agreement and the documents
contemplated hereby;
(iii) A certificate of the Secretary or an Assistant Secretary
of each Borrower certifying (A) the names and true signatures of the
officers of such Borrower authorized to sign this Agreement and the
other documents to be delivered hereunder; (B) that attached thereto
are true and correct copies of the
28
articles or certificate of incorporation and by-laws, or equivalent
organizational documents, of such Borrower, in each case in effect
on such date; and (C) that attached thereto are true and correct
copies of all governmental and regulatory authorizations and
approvals required for the due execution, delivery and performance
by such Borrower of this Agreement and the documents contemplated
hereby;
(iv) A certificate signed by either the chief financial
officer, principal accounting officer or treasurer of each Borrower
stating that (A) the representations and warranties contained in
Section 4.01 are correct on and as of the date of such certificate
as though made on and as of such date and (B) no Event of Default or
Unmatured Event of Default has occurred and is continuing on the
date of such certificate; and
(v) A favorable opinion of Ballard Spahr Andrews & Ingersoll
LLC, special counsel for the Borrowers, substantially in the form of
Exhibit D-1 hereto.
SECTION 3.02 Conditions Precedent to All Credit Extensions. The obligation
of each Lender to make any Advance to any Borrower and of the LC Issuer to issue
or modify any Facility LC for the account of any Borrower shall be subject to
the further conditions precedent that on the date of such Credit Extension the
following statements shall be true, and (a) the giving of the applicable Notice
of Borrowing and the acceptance by the applicable Borrower of the proceeds of
Advances pursuant thereto and (b) the request by a Borrower for the issuance or
Modification of a Facility LC shall, in each case, constitute a representation
and warranty by such Borrower that on the date of the making of such Advances or
the issuance or Modification of such Facility LC such statements are true:
(A) The representations and warranties of such Borrower
contained in Section 4.01 are correct on and as of the date of such Credit
Extension, before and after giving effect to such Credit Extension and, in
the case of the making of Advances, the application of the proceeds
therefrom, as though made on and as of such date; and
(B) No event has occurred and is continuing, or would result
from such Credit Extension or, in the case of the making of Advances, from
the application of the proceeds therefrom, that constitutes an Event of
Default or Unmatured Event of Default with respect to such Borrower.
SECTION 3.03 Additional Conditions Precedent to Initial Credit Extension
to Genco. The obligation of each Lender to make its initial Advance to Genco and
of the LC Issuer to issue any Facility LC for the account of Genco shall be
subject to the further conditions precedent that (a) Genco shall have delivered
audited financial statements to the Administrative Agent and the Lenders and (b)
100% of the Lenders shall have notified the Administrative Agent that such
audited financial statements are satisfactory in form and substance to such
Lenders.
SECTION 3.04 Additional Condition Precedent to Initial Credit Extension to
ComEd. The obligation of each Lender to make its initial Advance to ComEd and of
the LC Issuer to issue any Facility LC for the account of ComEd shall be subject
to the further condition
29
precedent that the Administrative Agent shall have received, in form and
substance satisfactory to the Administrative Agent and in sufficient copies to
provide one for each Lender, a favorable opinion of Sidley Austin Brown & Wood,
special counsel for ComEd, substantially in the form of Exhibit D-2 hereto.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01 Representations and Warranties of the Borrowers. Each
Borrower represents and warrants as follows:
(a) Such Borrower is a corporation, limited liability company or
business trust duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation or organization.
(b) The execution, delivery and performance by such Borrower of this
Agreement and the Notes issued by such Borrower are within such Borrower's
powers, have been duly authorized by all necessary organizational action on the
part of such Borrower, and do not and will not contravene (i) the articles or
certificate of incorporation, by-laws or the organizational documents of such
Borrower, (ii) applicable law or (iii) any contractual or legal restriction
binding on or affecting the properties of such Borrower or any of its
Subsidiaries.
(c) No authorization or approval or other action by, and no notice
to or filing with, any governmental authority or regulatory body is required for
the due execution, delivery and performance by such Borrower of this Agreement
or the applicable Notes, except an appropriate order or orders of (i) the
Securities and Exchange Commission under the Public Utility Holding Company Act
of 1935 and (ii) in the case of ComEd, the Illinois Commerce Commission under
the Illinois Public Utilities Act, which order or orders have been duly obtained
(or, in the case of the order or orders referred to in clause (ii), will have
been obtained prior to any Credit Extension to ComEd) and are (or, in the case
of the order or orders referred to in clause (ii), will be at the time of any
Credit Extension to ComEd) (x) in full force and effect and (y) sufficient for
the purposes hereof.
(d) This Agreement is, and the applicable Notes when delivered
hereunder will be, legal, valid and binding obligations of such Borrowers,
enforceable against such Borrower in accordance with their respective terms,
except as the enforceability thereof may be limited by equitable principles or
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally.
(e) (i) In the case of PECO, the consolidated balance sheet of PECO
and its Subsidiaries as at December 31, 2000, and the related
statements of income and retained earnings and of cash flows of PECO
and its Subsidiaries for the fiscal year then ended, certified by
Pricewaterhouse Coopers LLP, and the unaudited consolidated balance
sheet of PECO and its Subsidiaries as at September 30, 2001, and the
related unaudited statement of income for the nine-month period then
ended, copies of which have been furnished to each Lender,
30
fairly present in all material respects (subject, in the case of
such balance sheet and statement of income for the period ended
September 30, 2001, to year-end adjustments) the consolidated
financial condition of PECO and its Subsidiaries as at such dates
and the consolidated results of the operations of PECO and its
Subsidiaries for the periods ended on such dates, all in accordance
with GAAP; and since September 30, 2001 there has been no Material
Adverse Change with respect to PECO.
(ii) In the case of ComEd, the consolidated balance sheet of
ComEd and its Subsidiaries as at December 31, 2000 and the related
consolidated statements of income, retained earnings and cash flows
of ComEd and its Subsidiaries for the fiscal year then ended,
certified by Pricewaterhouse Coopers LLP, and the unaudited
consolidated balance sheet of ComEd and its Subsidiaries as of
September 30, 2001 and the related unaudited statement of income for
the nine-month period then ended, copies of which have been
furnished to each Lender, fairly present in all material respects
(subject in the case of such balance sheet and statement of income
for the period ended September 30, 2001, to year-end adjustments)
the consolidated financial condition of ComEd and its Subsidiaries
as at such dates and the consolidated results of the operations of
ComEd and its Subsidiaries for the periods ended on such dates in
accordance with GAAP; and since December 31, 2000 there has been no
Material Adverse Change with respect to ComEd.
(iii) In the case of Exelon, the consolidated balance sheet of
Exelon and its Subsidiaries as at December 31, 2000 and the related
consolidated statements of income, retained earnings and cash flows
of Exelon for the fiscal year then ended, certified by
Pricewaterhouse Coopers LLP, and the unaudited consolidated balance
sheet of Exelon and its Subsidiaries as of September 30, 2001 and
the related unaudited statement of income for the nine-month period
then ended, copies of which have been furnished to each Lender,
fairly present in all material respects (subject, in the case of
such balance sheet and statement of income for the period ended
September 30, 2001, to year-end adjustments) the consolidated
financial condition of Exelon and its Subsidiaries as at such dates
and the consolidated results of the operations of Exelon and its
Subsidiaries for the periods ended on such dates in accordance with
GAAP; and since December 31, 2000 there has been no Material Adverse
Change with respect to Exelon.
(f) Except as disclosed in such Borrower's (and, in the case of
Genco, Exelon's) Annual, Quarterly or Current Reports, each as filed with the
Securities and Exchange Commission and delivered to the Lenders prior to the
later of the date of execution and delivery of this Agreement or the date of the
most recent extension of the Commitment Termination Date pursuant to Section
2.17, there is no pending or threatened action, investigation or proceeding
affecting such Borrower or any of its Subsidiaries before any court,
governmental agency or arbitrator that may reasonably be anticipated to have a
Material Adverse Effect with respect to such Borrower. There is no pending or
threatened action or proceeding against such Borrower or any of its Subsidiaries
that purports to affect the legality, validity, binding effect or enforceability
against such Borrower of this Agreement or any Note issued by such Borrower.
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(g) No proceeds of any Loan to such Borrower have been or will be
used directly or indirectly in connection with the acquisition of in excess of
5% of any class of equity securities that is registered pursuant to Section 12
of the Exchange Act or any transaction subject to the requirements of Section 13
or 14 of the Exchange Act.
(h) Such Borrower is not engaged in the business of extending credit
for the purpose of purchasing or carrying margin stock (within the meaning of
Regulation U issued by the Board of Governors of the Federal Reserve System),
and no proceeds of any Advance to such Borrower will be used to purchase or
carry any margin stock or to extend credit to others for the purpose of
purchasing or carrying any margin stock. Not more than 25% of the value of the
assets of such Borrower and its Subsidiaries is represented by margin stock.
(i) Such Borrower is not an "investment company" or a company
"controlled" by an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
(j) During the twelve consecutive month period prior to the date of
the execution and delivery of this Agreement and prior to the date of any
borrowing of Advances by such Borrower or the issuance or modification of any
Facility LC for the account of such Borrower, no steps have been taken to
terminate any Plan, and no contribution failure by such Borrower or any other
member of the Controlled Group has occurred with respect to any Plan. No
condition exists or event or transaction has occurred with respect to any Plan
(including any Multiemployer Plan) which might result in the incurrence by such
Borrower or any other member of the Controlled Group of any material liability,
fine or penalty.
ARTICLE V
COVENANTS OF THE BORROWERS
SECTION 5.01 Affirmative Covenants. Each Borrower agrees that so long as
any amount payable by such Borrower hereunder remains unpaid, any Facility LC
issued for the account of such Borrower remains outstanding or any Lender has
any Commitment to such Borrower hereunder, such Borrower will, and, in the case
of Section 5.01(a), will cause its Principal Subsidiaries to, unless the
Majority Lenders shall otherwise consent in writing:
(a) Keep Books; Existence; Maintenance of Properties; Compliance
with Laws; Insurance; Taxes.
(i) keep proper books of record and account, all in accordance
with generally accepted accounting principles in the United States,
consistently applied;
(ii) subject to Section 5.02(b), preserve and keep in full
force and effect its existence;
(iii) maintain and preserve all of its properties (except such
properties the failure of which to maintain or preserve would not
have, individually or in the aggregate, a Material Adverse Effect on
such Borrower) which are used or useful
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in the conduct of its business in good working order and condition,
ordinary wear and tear excepted;
(iv) comply in all material respects with the requirements of
all applicable laws, rules, regulations and orders (including those
of any governmental authority and including with respect to
environmental matters) to the extent the failure to so comply,
individually or in the aggregate, would have a Material Adverse
Effect on such Borrower;
(v) maintain insurance with responsible and reputable
insurance companies or associations, or self-insure, as the case may
be, in each case in such amounts and covering such contingencies,
casualties and risks as is customarily carried by or self-insured
against by companies engaged in similar businesses and owning
similar properties in the same general areas in which such Borrower
and its Principal Subsidiaries operate;
(vi) at any reasonable time and from time to time, pursuant to
prior notice delivered to such Borrower, permit any Lender, or any
agent or representative of any thereof, to examine and, at such
Lender's expense, make copies of, and abstracts from the records and
books of account of, and visit the properties of, such Borrower and
any of its Principal Subsidiaries and to discuss the affairs,
finances and accounts of such Borrower and any of its Principal
Subsidiaries with any of their respective officers; provided that
any non-public information (which has been identified as such by
such Borrower or the applicable Principal Subsidiary) obtained by
any Lender or any of its agents or representatives pursuant to this
subsection (vi) shall be treated confidentially by such Person;
provided, further, that such Person may disclose such information to
any other party to this Agreement, its examiners, affiliates,
outside auditors, counsel or other professional advisors in
connection with the Agreement or if otherwise required to do so by
law or regulatory process; and
(vii) use the proceeds of the Advances to it for general
purposes of such corporation, limited liability company or business
trust, as the case may be (including, without limitation, the
refinancing of its commercial paper and the making of acquisitions),
but in no event for any purpose which would be contrary to clause
(g) or clause (h) of Section 4.01.
(b) Reporting Requirements. Furnish to the Lenders:
(i) as soon as possible, and in any event within five Business
Days after the occurrence of any Event of Default or Unmatured Event
of Default with respect to such Borrower continuing on the date of
such statement, a statement of an authorized officer of such
Borrower setting forth details of such Event of Default or Unmatured
Event of Default and the action which such Borrower proposes to take
with respect thereto;
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(ii) as soon as available and in any event within 60 days
after the end of each of the first three quarters of each fiscal
year of such Borrower (commencing with the quarter ending March 31,
2002), a copy of such Borrower's Quarterly Report on Form 10-Q filed
with the Securities and Exchange Commission with respect to such
quarter (or, if such Borrower is not required to file a Quarterly
Report on Form 10-Q, copies of an unaudited consolidated balance
sheet of such Borrower as of the end of such quarter and the related
consolidated statement of income of such Borrower for the portion of
such Borrower's fiscal year ending on the last day of such quarter,
in each case prepared in accordance with GAAP, subject to the
absence of footnotes and to year-end adjustments), together with a
certificate of an authorized officer of such Borrower stating that
no Event of Default or Unmatured Event of Default with respect to
such Borrower has occurred and is continuing or, if any such Event
of Default or Unmatured Event of Default has occurred and is
continuing, a statement as to the nature thereof and the action
which such Borrower proposes to take with respect thereto;
(iii) as soon as available and in any event within 105 days
after the end of each fiscal year of such Borrower, a copy of such
Borrower's Annual Report on Form 10-K filed with the Securities and
Exchange Commission with respect to such fiscal year (or, if such
Borrower is not required to file an Annual Report on Form 10-K, the
consolidated balance sheet of such Borrower and its subsidiaries as
of the last day of such fiscal year and the related consolidated
statements of income, retained earnings (if applicable) and
cashflows of such Borrower for such fiscal year, certified by
Pricewaterhouse Coopers LLP or other certified public accountants of
recognized national standing), together with a certificate of an
authorized officer of such Borrower stating that no Event of Default
or Unmatured Event of Default with respect to such Borrower has
occurred and is continuing or, if any such Event of Default or
Unmatured Event of Default has occurred and is continuing, a
statement as to the nature thereof and the action which such
Borrower proposes to take with respect thereto;
(iv) concurrently with the delivery of the annual and
quarterly reports referred to in Sections 5.01(b)(ii) and
5.01(b)(iii), a compliance certificate in substantially the form set
forth in Exhibit E, duly completed and signed by the Chief Financial
Officer, Treasurer or an Assistant Treasurer of such Borrower;
(v) except as otherwise provided in subsections (ii) and (iii)
above, promptly after the sending or filing thereof, copies of all
reports that such Borrower sends to any of its security holders, and
copies of all Reports on Form 10-K, 10-Q or 8-K, and registration
statements and prospectuses that such Borrower or any of its
Subsidiaries files with the Securities and Exchange Commission or
any national securities exchange (except to the extent that any such
registration statement or prospectus relates solely to the issuance
of securities pursuant to employee or dividend reinvestment plans of
such Borrower or such Subsidiary);
34
(vi) promptly upon becoming aware of the institution of any
steps by such Borrower or any other Person to terminate any Plan, or
the failure to make a required contribution to any Plan if such
failure is sufficient to give rise to a lien under section 302(f) of
ERISA, or the taking of any action with respect to a Plan which
could result in the requirement that such Borrower furnish a bond or
other security to the PBGC or such Plan, or the occurrence of any
event with respect to any Plan, which could result in the incurrence
by such Borrower or any other member of the Controlled Group of any
material liability, fine or penalty, notice thereof and a statement
as to the action such Borrower proposes to take with respect
thereto;
(vii) promptly upon becoming aware thereof, notice of any
change in the Moody's Rating or the S&P Rating for such Borrower;
and
(viii) such other information respecting the condition,
operations, business or prospects, financial or otherwise, of such
Borrower or any of its Subsidiaries as any Lender, through the
Administrative Agent, may from time to time reasonably request.
SECTION 5.02 Negative Covenants. Each Borrower agrees that so long as any
amount payable by such Borrower hereunder remains unpaid, any Facility LC issued
for the account of such Borrower remains outstanding or any Lender has any
Commitment to such Borrower hereunder (except with respect to subsection (a),
which shall be applicable only as of the date hereof and at any time any Advance
to such Borrower or Facility LC issued for the account of such Borrower is
outstanding or is to be made or issued, as applicable), such Borrower will not,
without the written consent of the Majority Lenders:
(a) Limitation on Liens. Create, incur, assume or suffer to exist,
or, in the case of Exelon, permit any of its Material Subsidiaries to create,
incur, assume or suffer to exist, any Lien on its respective property, revenues
or assets, whether now owned or hereafter acquired except (i) Liens imposed by
law, such as carriers', warehousemen's and mechanics' Liens and other similar
Liens arising in the ordinary course of business; (ii) Liens on the capital
stock of or any other equity interest in any of its Subsidiaries (excluding, in
the case of Exelon, the stock of ComEd, PECO, Genco and any holding company for
any of the foregoing) or any such Subsidiary's assets to secure Nonrecourse
Indebtedness; (iii) Liens upon or in any property acquired in the ordinary
course of business to secure the purchase price of such property or to secure
any obligation incurred solely for the purpose of financing the acquisition of
such property; (iv) Liens existing on such property at the time of its
acquisition (other than any such Lien created in contemplation of such
acquisition unless permitted by the preceding clause (iii)); (v) Liens on the
property, revenues and/or assets of any Person that exist at the time such
Person becomes a Subsidiary and the continuation of such Liens in connection
with any refinancing or restructuring of the obligations secured by such Liens;
(vi) Liens granted in connection with any financing arrangement for the purchase
of nuclear fuel or the financing of pollution control facilities, limited to the
fuel or facilities so purchased or acquired; (vii) Liens arising in connection
with sales or transfers of, or financing secured by, accounts receivable or
related contracts; provided that any such sale, transfer or financing shall be
on arms' length terms; (viii) Liens granted by a Special Purpose Subsidiary to
secure Transitional Funding Instruments of
35
such Special Purpose Subsidiary; (ix) in the case of ComEd, Liens arising under
the ComEd Mortgage and "permitted liens" as defined in the ComEd Mortgage; (x)
in the case of PECO, (A) Liens granted under the PECO Mortgage and "excepted
encumbrances" as defined in the PECO Mortgage and (B) Liens securing PECO's
notes collateralized solely by mortgage bonds of PECO issued under the terms of
the PECO Mortgage; (xi) in the case of PECO, ComEd and Genco, Liens arising in
connection with sale and leaseback transactions entered into by such Borrower or
a Subsidiary thereof, but only to the extent (I) in the case of PECO or ComEd or
any Subsidiary thereof, the proceeds received from such sale shall immediately
be applied to retire mortgage bonds of PECO or ComED issued under the terms of
the PECO Mortgage or the ComEd Mortgage, as the case may be, or (II) the
aggregate purchase price of assets sold pursuant to such sale and leaseback
transactions where such proceeds are not applied as provided in clause (I) shall
not exceed, in the aggregate for PECO, ComEd, Genco and their Subsidiaries,
$1,000,000,000; and (xii) Liens, other than those described in clauses (i)
through (xi) of this subsection, granted by such Borrower or, in the case of
Exelon, any of its Material Subsidiaries in the ordinary course of business
securing Debt of such Borrower and, if applicable, such Material Subsidiaries;
provided that the aggregate amount of all Debt secured by such Liens shall not
exceed in the aggregate at any one time outstanding (I) in the case of Exelon
and its Material Subsidiaries, $100,000,000, (II) in the case of ComEd,
$50,000,000, (III) in the case of Genco, $50,000,000, and (IV) in the case of
PECO, $50,000,000.
(b) Mergers and Consolidations; Disposition of Assets. Merge with or
into or consolidate with or into, or sell, assign, lease or otherwise dispose of
(whether in one transaction or in a series of transactions) all or substantially
all of its assets (whether now owned or hereafter acquired) to any Person or
permit any Principal Subsidiary to do so, except that (i) any of its Principal
Subsidiaries may merge with or into or consolidate with or transfer assets to
any other Principal Subsidiary of such Borrower, (ii) any of its Principal
Subsidiaries may merge with or into or consolidate with or transfer assets to
such Borrower and (iii) such Borrower or any of its Principal Subsidiaries may
merge with or into or consolidate with or transfer assets to any other Person;
provided that, in each case, immediately thereafter in giving effect thereto, no
Event of Default or Unmatured Event of Default with respect to such Borrower
shall have occurred and be continuing and (A) in the case of any such merger,
consolidation or transfer of assets to which a Borrower is a party, either (x)
such Borrower shall be the surviving entity or (y) the surviving entity shall be
an Eligible Successor and shall have assumed all of the obligations of such
Borrower under this Agreement and the Notes issued by such Borrower and the
Facility LCs issued for the account of such Borrower pursuant to a written
instrument in form and substance satisfactory to the Administrative Agent, (B)
subject to clause (A) above, in the case of any such merger, consolidation or
transfer of assets to which any of its Principal Subsidiaries is a party, a
Principal Subsidiary of such Borrower shall be the surviving entity and (C)
subject to clause (A) above, in the case of any such merger, consolidation or
transfer of assets to which a Material Subsidiary of Exelon is a party, a
Material Subsidiary of Exelon shall be the surviving entity.
(c) Leverage Ratios. Permit its Leverage Ratio to exceed 65% at any
time.
(d) Continuation of Businesses. Engage in, or permit any of its
Subsidiaries to engage in, any line of business which is material to Exelon and
its Subsidiaries, taken as a whole, other than businesses engaged in by such
Borrower and its Subsidiaries as of the date hereof and reasonable extensions
thereof.
36
(e) Capital Structure. In the case of Exelon, fail at any time to
own, free and clear of all Liens, at least 95% of the issued and outstanding
common shares or other common ownership interests of ComEd, 100% of the issued
and outstanding common shares or other common ownership interests of PECO and
100% of the issued and outstanding membership interests of Genco (or, in any
such case, of a holding company which owns, free and clear of all Liens, at
least 95% of the issued and outstanding shares of common stock of ComEd, 100% of
the issued and outstanding common shares or other common ownership interests of
PECO or 100% of the issued and outstanding membership interests of Genco).
(f) Restrictive Agreements. In the case of Exelon, permit ComEd,
Genco or PECO (or any holding company for any of the foregoing described in the
parenthetical clause at the end of 5.02(e)) to, directly or indirectly, enter
into, incur or permit to exist any agreement or other arrangement that
prohibits, restricts or imposes any condition upon the ability of such entity to
declare or pay dividends to Exelon (or, if applicable, to its holding company),
except for existing restrictions on (i) PECO relating to (A) the priority of
payments on its subordinated debentures contained in the Indenture dated as of
July 1, 1994 between PECO and First Union National Bank, as trustee, as amended
and supplemented to the date hereof, and (B) the priority payment of quarterly
dividends on its preferred stock contained in its Amended and Restated Articles
of Incorporation as in effect on the date hereof.; and (ii) ComEd in connection
with its existing Subordinated Deferrable Interest Securities.
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01 Events of Default. If any of the following events shall occur
and be continuing with respect to a Borrower (any such event an "Event of
Default" with respect to such Borrower):
(a) Such Borrower shall fail to pay (i) any principal of any Advance
to such Borrower when the same becomes due and payable, (ii) any Reimbursement
Obligation of such Borrower within one Business Day after the same becomes due
and payable or (iii) any interest on any Advance to such Borrower or any other
amount payable by such Borrower under this Agreement or any Note issued by such
Borrower within three Business Days after the same becomes due and payable; or
(b) Any representation or warranty made by such Borrower herein or
by such Borrower (or any of its officers) pursuant to the terms of this
Agreement shall prove to have been incorrect or misleading in any material
respect when made; or
(c) Such Borrower shall fail to perform or observe (i) any term,
covenant or agreement contained in Section 5.02, Section 5.01(a)(vii) or Section
5.01(b)(i), in each case to the extent applicable to such Borrower, or (ii) any
other term, covenant or agreement contained in this Agreement on its part to be
performed or observed if the failure to perform or observe such other term,
covenant or agreement shall remain unremedied for 30 days after written notice
thereof shall have been given to such Borrower by the Administrative Agent
(which notice shall be given by the Administrative Agent at the written request
of any Lender); or
37
(d) Such Borrower or any Principal Subsidiary thereof shall fail to
pay any principal of or premium or interest on any Debt that is outstanding in a
principal amount in excess of $50,000,000 in the aggregate (but excluding Debt
evidenced by the Notes, Nonrecourse Indebtedness and Transitional Funding
Instruments) of such Borrower or such Principal Subsidiary (as the case may be)
when the same becomes due and payable (whether by scheduled maturity, required
prepayment, acceleration, demand or otherwise), and such failure shall continue
after the applicable grace period, if any, specified in the agreement or
instrument relating to such Debt; or any other event shall occur or condition
shall exist under any agreement or instrument relating to any such Debt and
shall continue after the applicable grace period, if any, specified in such
agreement or instrument, if the effect of such event or condition is to
accelerate, or to permit the acceleration of, the maturity of such Debt; or any
such Debt shall be declared to be due and payable, or required to be prepaid
(other than by a regularly scheduled required prepayment), prior to the stated
maturity thereof, other than any acceleration of any Debt secured by equipment
leases or fuel leases of such Borrower or a Principal Subsidiary thereof as a
result of the occurrence of any event requiring a prepayment (whether or not
characterized as such) thereunder, which prepayment will not result in a
Material Adverse Change with respect to such Borrower; or
(e) Such Borrower or any Principal Subsidiary thereof (other than a
Special Purpose Subsidiary) shall generally not pay its debts as such debts
become due, or shall admit in writing its inability to pay its debts generally,
or shall make a general assignment for the benefit of creditors; or any
proceeding shall be instituted by or against such Borrower or any Principal
Subsidiary thereof (other than a Special Purpose Subsidiary) seeking to
adjudicate it as bankrupt or insolvent, or seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief, or composition of
it or its debts under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors, or seeking the entry of an order for relief
or the appointment of a receiver, trustee, custodian or other similar official
for it or for any substantial part of its property and, in the case of any such
proceeding instituted against it (but not instituted by it), either such
proceeding shall remain undismissed or unstayed for a period of 60 days, or any
of the actions sought in such proceeding (including, without limitation, the
entry of an order for relief against, or the appointment of a receiver, trustee,
custodian or other similar official for, it or for any substantial part of its
property,) shall occur; or such Borrower or any Principal Subsidiary thereof
(other than a Special Purpose Subsidiary) shall take any action to authorize or
to consent to any of the actions set forth above in this subsection (e); or
(f) One or more judgments or orders for the payment of money in an
aggregate amount exceeding $50,000,000 (excluding any such judgments or orders
which are fully covered by insurance, subject to any customary deductible, and
under which the applicable insurance carrier has acknowledged such full coverage
in writing) shall be rendered against such Borrower or any Principal Subsidiary
thereof and either (i) enforcement proceedings shall have been commenced by any
creditor upon such judgment or order or (ii) there shall be any period of 30
consecutive days during which a stay of enforcement of such judgment or order,
by reason of a pending appeal or otherwise, shall not be in effect; or
(g) (i) Any Reportable Event that the Majority Lenders determine in
good faith might constitute grounds for the termination of any Plan or for the
appointment by the appropriate United States District Court of a trustee to
administer a Plan shall have occurred and
38
be continuing 30 days after written notice to such effect shall have been given
to such Borrower by the Administrative Agent or (ii) any Plan shall be
terminated, or (iii) a Trustee shall be appointed by an appropriate United
States District Court to administer any Plan or (iv) the PBGC shall institute
proceedings to terminate any Plan or to appoint a trustee to administer any
Plan; provided, however, that on the date of any event described in clauses (i)
through (iv) above, the Unfunded Liabilities of such Plan exceed $20,000,000; or
(h) In the case of ComEd, Exelon (or a wholly owned Subsidiary of
Exelon) shall fail to own, free and clear of all Liens, at least 95% of its
issued and outstanding common shares or other common ownership interests;
(i) In the case of PECO, Exelon (or a wholly owned Subsidiary of
Exelon) shall fail to own, free and clear of all Liens, 100% of its issued and
outstanding common shares or other common ownership interests; or
(j) In the case of Genco, Exelon (or a wholly owned Subsidiary of
Exelon) shall fail to own, free and clear of all Liens, 100% of the membership
interests of Genco;
then, and in any such event, the Administrative Agent shall at the request, or
may with the consent, of the Majority Lenders, by notice to such Borrower, (i)
declare the respective Commitments of the Lenders to such Borrower and the
commitment of the LC Issuer to issue Facility LCs for the account of such
Borrower to be terminated, whereupon the same shall forthwith terminate, and/or
(ii) declare the principal amount outstanding under the Notes issued by such
Borrower, all interest thereon and all other amounts payable under this
Agreement by such Borrower (including all contingent LC Obligations) to be
forthwith due and payable, whereupon the principal amount outstanding under such
Notes, all such interest and all such other amounts shall become and be
forthwith due and payable, without presentment, demand, protest or further
notice of any kind, all of which are hereby expressly waived by such Borrower;
provided, however, that in the event of an Event of Default under Section
6.01(e), (A) the obligation of each Lender to make any Advance to such Borrower
and the obligation of the LC Issuer to issue Facility LCs for the account of
such Borrower shall automatically be terminated and (B) the principal amount
outstanding under the Notes issued by such Borrower, all interest thereon and
all other amounts payable by such Borrower hereunder (including all contingent
LC Obligations of such Borrower) shall automatically and immediately become due
and payable, without presentment, demand, protest or any notice of any kind, all
of which are hereby expressly waived by such Borrower.
ARTICLE VII
THE AGENTS
SECTION 7.01 Authorization and Action. Each Lender hereby appoints and
authorizes the Administrative Agent to take such action as administrative agent
on its behalf and to exercise such powers under this Agreement as are delegated
to the Administrative Agent by the terms hereof, together with such powers as
are reasonably incidental thereto. As to any matters not expressly provided for
by this Agreement (including, without limitation, enforcement or collection of
the Notes), the Administrative Agent shall not be required to exercise any
discretion
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or take any action, but shall be required to act or to refrain from acting (and
shall be fully protected in so acting or refraining from acting) upon the
instructions of the Majority Lenders, and such instructions shall be binding
upon all Lenders and all holders of Notes; provided, however, that the
Administrative Agent shall not be required to take any action which exposes the
Administrative Agent to personal liability or which is contrary to this
Agreement or applicable law. The Administrative Agent agrees to give to each
Lender prompt notice of each notice given to it by a Borrower pursuant to the
terms of this Agreement.
SECTION 7.02 Agents' Reliance, Etc. Neither the Administrative Agent nor
any of its directors, officers, agents or employees shall be liable for any
action taken or omitted to be taken by it or them under or in connection with
this Agreement, except for its or their respective own gross negligence or
willful misconduct. Without limitation of the generality of the foregoing: (i)
the Administrative Agent may treat the payee of any Note as the holder thereof
until the Administrative Agent receives and accepts an Assignment and Acceptance
entered into by the Lender which is the payee of such Note, as assignor, and an
Eligible Assignee, as assignee, as provided in Section 8.07; (ii) the
Administrative Agent may consult with legal counsel (including counsel for a
Borrower), independent public accountants and other experts selected by it and
shall not be liable for any action taken or omitted to be taken in good faith by
it in accordance with the advice of such counsel, accountants or experts; (iii)
the Administrative Agent makes no warranty or representation to any Lender and
shall not be responsible to any Lender for any statements, warranties or
representations (whether written or oral) made in or in connection with this
Agreement; (iv) the Administrative Agent shall not have any duty to ascertain or
to inquire as to the performance or observance of any of the terms, covenants or
conditions of this Agreement on the part of any Borrower or to inspect the
property (including the books and records) of any Borrower; (v) the
Administrative Agent shall not be responsible to any Lender for the due
execution, legality, validity, enforceability, genuineness, sufficiency or value
of this Agreement or any other instrument or document furnished pursuant hereto;
and (vi) the Administrative Agent shall not incur any liability under or in
respect of this Agreement by acting upon any notice, consent, certificate or
other instrument or writing (which may be by telecopier, telegram, cable or
telex) believed by it to be genuine and signed or sent by the proper party or
parties.
SECTION 7.03 Agents and Affiliates. With respect to its Commitment,
Advances and Notes, Bank One shall have the same rights and powers under this
Agreement as any other Lender and may exercise the same as though it were not an
Agent; and the term "Lender" or "Lenders" shall, unless otherwise expressly
indicated, include Bank One in its individual capacity. Bank One and its
affiliates may accept deposits from, lend money to, act as trustee under
indentures of, and generally engage in any kind of business with, any Borrower,
any subsidiary of any Borrower and any Person who may do business with or own
securities of any Borrower or any such subsidiary, all as if it were not an
Agent and without any duty to account therefor to the Lenders.
SECTION 7.04 Lender Credit Decision. Each Lender acknowledges that it has,
independently and without reliance upon the Administrative Agent or any other
Lender and based on the financial statements referred to in Section 4.01(e) and
such other documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance
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upon the Administrative Agent or any other Lender and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own credit decisions in taking or not taking action under this Agreement.
SECTION 7.05 Indemnification. The Lenders agree to indemnify each Agent
(to the extent not reimbursed by a Borrower), ratably according to their
respective Pro Rata Shares, from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever which may be imposed
on, incurred by, or asserted against any such Agent in any way relating to or
arising out of this Agreement or any action taken or omitted by any such Agent
under this Agreement, provided that no Lender shall be liable for any portion of
such liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements resulting from such Agent's gross
negligence or willful misconduct. Without limitation of the foregoing, each
Lender agrees to reimburse each such Agent promptly upon demand for its Pro Rata
Share of any out-of-pocket expenses (including reasonable counsel fees) incurred
by such Agent in connection with the preparation, execution, delivery,
administration, modification, amendment or enforcement (whether through
negotiations, legal proceedings or otherwise) of, or legal advice in respect of
rights or responsibilities under, this Agreement, to the extent that such
expenses are reimbursable by a Borrower but for which such Agent is not
reimbursed by such Borrower.
SECTION 7.06 Successor Administrative Agent. The Administrative Agent may
resign at any time by giving written notice thereof to the Lenders and the
Borrowers and may be removed at any time with or without cause by the Majority
Lenders. Upon any such resignation or removal, the Majority Lenders shall have
the right to appoint a successor Administrative Agent. If no successor
Administrative Agent shall have been so appointed by the Majority Lenders, and
shall have accepted such appointment, within 30 days after the retiring
Administrative Agent's giving of notice of resignation or the Majority Lenders'
removal of the retiring Administrative Agent, then the retiring Administrative
Agent may, on behalf of the Lenders, appoint a successor Administrative Agent,
which shall be a commercial bank described in clause (i) or (ii) of the
definition of "Eligible Assignee" and having a combined capital and surplus of
at least $150,000,000. Upon the acceptance of any appointment as Administrative
Agent hereunder by a successor Administrative Agent, such successor
Administrative Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Administrative Agent, and
the retiring Administrative Agent shall be discharged from its duties and
obligations under this Agreement. After any retiring Administrative Agent's
resignation or removal hereunder as Administrative Agent, the provisions of this
Article VII shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was Administrative Agent under this Agreement.
Notwithstanding the foregoing, if no Event of Default or Unmatured Event of
Default shall have occurred and be continuing, then no successor Administrative
Agent shall be appointed under this Section 7.06 without the prior written
consent of the Borrowers, which consent shall not be unreasonably withheld or
delayed.
SECTION 7.07 Co-Documentation Agents, Co-Syndication Agents and Lead
Arranger. The titles "Co-Documentation Agent," "Co-Syndication Agent" and "Lead
Arranger and Sole Book Runner" are purely honorific, and no Person designated as
a "Co-Documentation Agent," a "Co-Syndication Agent" or the "Lead Arranger and
Sole Book Runner" shall have any duties or responsibilities in such capacity.
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ARTICLE VIII
MISCELLANEOUS
SECTION 8.01 Amendments, Etc. No amendment or waiver of any provision of
this Agreement or the Notes, nor consent to any departure by any Borrower
therefrom, shall in any event be effective unless the same shall be in writing
and signed by the Majority Lenders, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given; provided, however, that no amendment, waiver or consent shall, unless in
writing and signed by all the Lenders (other than any Lender that is a Borrower
or an Affiliate of a Borrower), do any of the following: (a) waive any of the
conditions specified in Section 3.01, 3.02 or 3.03, (b) increase or extend the
Commitments of the Lenders, increase any Borrower's Sublimit to an amount
greater than the amount specified in Section 2.04(c)(ii)(B) or subject the
Lenders to any additional obligations, (c) reduce the principal of, or interest
on, the Notes or any fees or other amounts payable hereunder, (d) postpone any
date fixed for any payment of principal of, or interest on, the Notes or any
fees or other amounts payable hereunder, (e) change the percentage of the
Commitments or of the aggregate unpaid principal amount of the Notes, or the
number of Lenders, that shall be required for the Lenders or any of them to take
any action hereunder, or (f) amend this Section 8.01; provided, further, that
(i) no amendment, waiver or consent shall, unless in writing and signed by the
Administrative Agent, in addition to the Lenders required above to take such
action, affect the rights or duties of the Administrative Agent under this
Agreement or any Note; and (ii) no amendment, waiver or consent shall, unless in
writing and signed by the LC Issuer, in addition to the Lenders required above
to take such action, affect the rights or duties of the LC Issuer under this
Agreement.
SECTION 8.02 Notices, Etc. All notices and other communications provided
for hereunder shall be in writing (including telecopier, telegraphic, telex or
cable communication) and mailed, telecopied, telegraphed, telexed, cabled or
delivered, if to any Borrower, at 10 S. Dearborn, 37th Floor, Chicago, IL 60603,
Attention: J. Barry Mitchell, Telecopy: (312) 394-5440; if to any Lender listed
on the signature pages hereof, at its Domestic Lending Office specified opposite
its name on Schedule I hereto; if to any other Lender, at its Domestic Lending
Office specified in the Assignment and Acceptance pursuant to which it became a
Lender; and if to the Administrative Agent, at its address at 1 Bank One Plaza,
Mail Suite 0634, 1FPN-10, Chicago, Illinois 60670, Attention: Mr. Ron Cromey,
Telecopy: (312) 732-4840 or, as to each party, at such other address as shall be
designated by such party in a written notice to the other parties. All such
notices and communications shall, when mailed, telecopied, telegraphed, telexed
or cabled, be effective when deposited in the mails, telecopied, delivered to
the telegraph company, confirmed by telex answerback or delivered to the cable
company, respectively, except that notices and communications to the
Administrative Agent pursuant to Article II or VII shall not be effective until
received by the Administrative Agent.
SECTION 8.03 No Waiver; Remedies. No failure on the part of any Lender,
the LC Issuer or the Administrative Agent to exercise, and no delay in
exercising, any right hereunder or under any Note shall operate as a waiver
thereof; nor shall any single or partial exercise of any such right preclude any
other or further exercise thereof or the exercise of any other right. The
remedies herein provided are cumulative and not exclusive of any remedies
provided by law.
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SECTION 8.04 Costs and Expenses; Indemnification. (a) Each Borrower
severally agrees to pay on demand all costs and expenses incurred by the
Administrative Agent, the LC Issuer and the Lead Arranger in connection with the
preparation, execution, delivery, administration, syndication, modification and
amendment of this Agreement, the Notes and the other documents to be delivered
hereunder, including, without limitation, the reasonable fees, internal charges
and out-of-pocket expenses of counsel (including, without limitation, in-house
counsel) for the Administrative Agent, the LC issuer and the Lead Arranger with
respect thereto and with respect to advising the Administrative Agent, the LC
Issuer and the Lead Arranger as to their respective rights and responsibilities
under this Agreement, in each case to the extent attributable to such Borrower;
it being understood that to the extent any such costs and expenses are not
attributable to a particular Borrower, each Borrower shall pay its proportionate
share thereof according to the Borrowers' respective Sublimits at the time such
costs and expenses were incurred. Each Borrower further severally agrees to pay
on demand all costs and expenses, if any (including, without limitation, counsel
fees and expenses of outside counsel and of internal counsel), incurred by the
Agent, the LC Issuer or any Lender in connection with the collection and
enforcement (whether through negotiations, legal proceedings or otherwise) of
such Borrower's obligations this Agreement, the Notes issued by such Borrower
and the other documents to be delivered by such Borrower hereunder, including,
without limitation, reasonable counsel fees and expenses in connection with the
enforcement of rights under this Section 8.04(a), in each case to the extent
attributable to such Borrower; it being understood that to the extent any such
costs and expenses are not attributable to a particular Borrower, each Borrower
shall pay its proportionate share thereof according to the Borrowers' respective
Sublimits at the time such costs and expenses were incurred.
(b) If any payment of principal of, or any conversion of, any
Eurodollar Rate Advance is made other than on the last day of the Interest
Period for such Advance, as a result of a payment or conversion pursuant to
Section 2.09 or 2.12 or acceleration of the maturity of the Notes pursuant to
Section 6.01 or for any other reason, the applicable Borrower shall, upon demand
by any Lender (with a copy of such demand to the Administrative Agent), pay to
the Administrative Agent for the account of such Lender any amount required to
compensate such Lender for any additional losses, costs or expenses which it may
reasonably incur as a result of such payment or conversion, including, without
limitation, any loss, cost or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by any Lender to fund or
maintain such Advance.
(c) Each Borrower hereby severally agrees to indemnify and hold each
Lender, the LC Issuer, each Agent and each of their respective Affiliates,
officers, directors and employees (each, an "Indemnified Person") harmless from
and against any and all claims, damages, losses, liabilities, costs or expenses
(including reasonable attorney's fees and expenses, whether or not such
Indemnified Person is named as a party to any proceeding or is otherwise
subjected to judicial or legal process arising from any such proceeding) that
any of them may pay or incur arising out of or relating to this Agreement, the
Notes or the transactions contemplated thereby, or the use by such Borrowers or
any of its Subsidiaries of the proceeds of any Advance to such Borrower, in each
case to the extent such claims damages, losses, liabilities, costs or expenses
are attributable to such Borrower, it being understood that to the extent any
such claims, damages, losses, liabilities, costs or expenses are not
attributable to a particular Borrower, each Borrower shall pay its proportionate
share thereof according to the Borrowers'
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respective Sublimits at the time such claims, damages, losses, liabilities,
costs or expenses arose; provided, however, that no Borrower shall be liable for
any portion of such claims, damages, losses, liabilities, costs or expenses
resulting from such Indemnified Person's gross negligence or willful misconduct.
Each Borrower's obligations under this Section 8.04(c) shall survive the
repayment of all amounts owing by such Borrower to the Lenders and the
Administrative Agent under this Agreement and the Notes issued by such Borrower
and the termination of the Commitments to such Borrower. If and to the extent
that the obligations of a Borrower under this Section 8.04(c) are unenforceable
for any reason, such Borrower agrees to make the maximum contribution to the
payment and satisfaction thereof which is permissible under applicable law.
SECTION 8.05 Right of Set-off. Upon (i) the occurrence and during the
continuance of any Event of Default with respect to a Borrower and (ii) the
making of the request or the granting of the consent specified by Section 6.01
to authorize the Administrative Agent to declare the Notes issued by such
Borrower due and payable pursuant to the provisions of Section 6.01, each Lender
is hereby authorized at any time and from time to time, to the fullest extent
permitted by law, to set off and apply any and all deposits (general or special,
time or demand, provisional or final) at any time held and other indebtedness at
any time owing by such Lender to or for the credit or the account of such
Borrower against any and all of the obligations of such Borrower now or
hereafter existing under this Agreement and any Note of such Borrower held by
such Lender, whether or not such Lender shall have made any demand under this
Agreement or such Note and although such obligations may be unmatured. Each
Lender agrees promptly to notify the applicable Borrower after any such set-off
and application made by such Lender, provided that the failure to give such
notice shall not affect the validity of such set-off and application. The rights
of each Lender under this Section 8.05 are in addition to other rights and
remedies (including, without limitation, other rights of set-off) that such
Lender may have.
SECTION 8.06 Binding Effect. This Agreement shall become effective when
counterparts hereof shall have been executed by the Borrowers and the Agents and
when the Administrative Agent shall have been notified by each Lender that such
Lender has executed a counterpart hereof and thereafter shall be binding upon
and inure to the benefit of the Borrowers, the Agents and each Lender and their
respective successors and assigns, provided that (except as permitted by Section
5.02(b)(iii)) no Borrower shall have the right to assign rights hereunder or any
interest herein without the prior written consent of all Lenders.
SECTION 8.07 Assignments and Participations. (a) Each Lender may, with the
prior written consent of Exelon, the LC Issuer and the Administrative Agent
(which consents shall not be unreasonably withheld or delayed), and if demanded
by a Borrower pursuant to subsection (g) hereof shall to the extent required by
such subsection (g), assign to one or more banks or other entities all or a
portion of its rights and obligations under this Agreement (including, without
limitation, all or a portion of its Commitment, the Advances owing to it, its
participation in Facility LCs and the Note or Notes held by it); provided,
however, that (i) each such assignment shall be of a constant, and not a
varying, percentage of all of the assigning Lender's rights and obligations
under this Agreement, (ii) the Commitment Amount of the assigning Lender being
assigned pursuant to each such assignment (determined as of the date of the
Assignment and Acceptance with respect to such assignment) shall in no event be
less than $10,000,000 or, if less, the entire amount of such Lender's
Commitment, and shall be an integral multiple of
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$1,000,000 or such Lender's entire Commitment, (iii) each such assignment shall
be to an Eligible Assignee, (iv) the parties to each such assignment shall
execute and deliver to the Administrative Agent, for its acceptance and
recording in the Register, an Assignment and Acceptance, together with any Note
or Notes subject to such assignment and a processing and recordation fee of
$4,000 (which shall be payable by one or more of the parties to the Assignment
and Acceptance, and not by any Borrower, and shall not be payable if the
assignee is a Federal Reserve Bank), and (v) the consent of Exelon shall not be
required after the occurrence and during the continuance of any Event of
Default. Upon such execution, delivery, acceptance and recording, from and after
the effective date specified in each Assignment and Acceptance, (x) the assignee
thereunder shall be a party hereto and, to the extent that rights and
obligations hereunder have been assigned to it pursuant to such Assignment and
Acceptance, have the rights and obligations of a Lender hereunder and (y) the
Lender assignor thereunder shall, to the extent that rights and obligations
hereunder have been assigned by it pursuant to such Assignment and Acceptance,
relinquish its rights and be released from its obligations under this Agreement
and, in the case of an Assignment and Acceptance covering all or the remaining
portion of an assigning Lender's rights and obligations under this Agreement,
such Lender shall cease to be a party hereto (although an assigning Lender shall
continue to be entitled to indemnification pursuant to Section 8.04(c)).
Notwithstanding anything contained in this Section 8.07(a) to the contrary, (A)
the consent of Exelon, the LC Issuer and the Administrative Agent shall not be
required with respect to any assignment by any Lender to an Affiliate of such
Lender or to another Lender and (B) any Lender may at any time, without the
consent of Exelon, the LC Issuer or the Administrative Agent, and without any
requirement to have an Assignment and Acceptance executed, assign all or any
part of its rights under this Agreement and its Notes to a Federal Reserve Bank,
provided that any such assignment does not release the transferor Lender from
any of its obligations hereunder.
(b) By executing and delivering an Assignment and Acceptance, the
Lender assignor thereunder and the assignee thereunder confirm to and agree with
each other and the other parties hereto as follows: (i) other than as provided
in such Assignment and Acceptance, such assigning Lender makes no representation
or warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Agreement or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of this Agreement or any other instrument or document furnished pursuant
hereto; (ii) such assigning Lender makes no representation or warranty and
assumes no responsibility with respect to the financial condition of any
Borrower or the performance or observance by any Borrower of any of its
obligations under this Agreement or any other instrument or document furnished
pursuant hereto; (iii) such assignee confirms that it has received a copy of
this Agreement, together with copies of the financial statements referred to in
Section 4.01(e) and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into such
Assignment and Acceptance; (iv) such assignee will, independently and without
reliance upon the Administrative Agent, such assigning Lender or any other
Lender and based on such documents and information as it shall deem appropriate
at the time, continue to make its own credit decisions in taking or not taking
action under this Agreement; (v) such assignee confirms that it is an Eligible
Assignee; (vi) such assignee appoints and authorizes the Administrative Agent to
take such action as agent on its behalf and to exercise such powers under this
Agreement as are delegated to the Administrative Agent by the terms hereof,
together with such powers as are reasonably incidental thereto; and (vii) such
assignee
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agrees that it will perform in accordance with their terms all of the
obligations which by the terms of this Agreement are required to be performed by
it as a Lender.
(c) The Administrative Agent shall maintain at its address referred
to in Section 8.02 a copy of each Assignment and Acceptance delivered to and
accepted by it and a register for the recordation of the names and addresses of
the Lenders and the Commitment Amount of, and principal amount of the Advances
owing by each Borrower to, each Lender from time to time (the "Register"). The
entries in the Register shall be conclusive and binding for all purposes, absent
manifest error, and each Borrower, the Administrative Agent and the Lenders may
treat each Person whose name is recorded in the Register as a Lender hereunder
for all purposes of this Agreement. The Register shall be available for
inspection by any Borrower or any Lender at any reasonable time and from time to
time upon reasonable prior notice.
(d) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an assignee representing that it is an Eligible Assignee,
together with all Notes subject to such assignment, the Administrative Agent
shall, if such Assignment and Acceptance has been completed and is in
substantially the form of Exhibit C hereto, (i) accept such Assignment and
Acceptance, (ii) record the information contained therein in the Register and
(iii) give prompt notice thereof to the Borrowers. Within five Business Days
after its receipt of such notice, each Borrower, at its own expense, shall
execute and deliver to the Administrative Agent, in exchange for the surrendered
Note issued by such Borrower a new Note to the order of such Eligible Assignee
in an amount equal to the product of the Commitment Amount assumed by such
Eligible Assignee pursuant to such Assignment and Acceptance multiplied by the
percentage which such Borrower's Sublimit is of the aggregate amount of the
Commitment Amounts (the "Sublimit Percentage") and, if the assigning Lender has
retained a Commitment hereunder, a new Note to the order of the assigning Lender
in an amount equal to the product of the Commitment Amount of such assigning
Lender after giving effect to such assignment multiplied by the Sublimit
Percentage. Each such new Note or Notes shall be dated the effective date of
such Assignment and Acceptance and shall otherwise be in substantially the form
of Exhibit A hereto.
(e) Each Lender may sell participations to one or more banks or
other entities (each, a "Participant") in or to all or a portion of its rights
and/or obligations under this Agreement (including, without limitation, all or a
portion of its Commitment, the Advances owing to it, its participation in
Facility LCs and the Note or Notes held by it); provided, however, that (i) such
Lender's obligations under this Agreement shall remain unchanged, (ii) such
Lender shall remain solely responsible to the other parties hereto for the
performance of such obligations, (iii) such Lender shall remain the holder of
any such Note for all purposes of this Agreement, (iv) the Borrowers, the
Administrative Agent and the other Lenders shall continue to deal solely and
directly with such Lender in connection with such Lender's rights and
obligations under this Agreement and (v) such Lender shall retain the sole right
to approve, without the consent of any Participant, any amendment, modification
or waiver of any provision of this Agreement or the Note or Notes held by such
Lender, other than any such amendment, modification or waiver with respect to
any Advance or Commitment in which such Participant has an interest that
forgives principal, interest or fees or reduces the interest rate or fees
payable with respect to any such Advance or Commitment, postpones any date fixed
for any regularly scheduled payment of principal of, or interest or fees on, any
such Advance or Commitment,
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extends any Commitment, releases any guarantor of any such Advance or releases
any substantial portion of collateral, if any, securing any such Advance.
(f) Any Lender may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this Section
8.07, disclose to the assignee or participant or proposed assignee or
participant, any information relating to the Borrowers furnished to such Lender
by or on behalf of the Borrowers; provided that, prior to any such disclosure,
the assignee or participant or proposed assignee or participant shall agree to
preserve the confidentiality of any confidential information relating to the
Borrowers received by it from such Lender (subject to customary exceptions
regarding regulatory requirements, compliance with legal process and other
requirements of law).
(g) If (i) any Lender shall make demand for payment under Section
2.11(a), 2.11(b) or 2.14, or (ii) shall deliver any notice to the Administrative
Agent pursuant to Section 2.12 resulting in the suspension of certain
obligations of the Lenders with respect to Eurodollar Rate Advances or (iii)
shall fail to consent to, or shall revoke its consent to, an extension of the
scheduled Commitment Termination Date pursuant to Section 2.17, then (in the
case of clause (i)) within 60 days after such demand (if, but only if, such
payment demanded under Section 2.11(a), 2.11(b) or 2.14 has been made by the
applicable Borrower), or (in the case of clause (ii)) within 60 days after such
notice (if such suspension is still in effect), or (in the case of clause (iii))
no later than five days prior to the then effective scheduled Commitment
Termination Date, as the case may be, the Borrowers may demand that such Lender
assign in accordance with this Section 8.07 to one or more Eligible Assignees
designated by the Borrowers and reasonably acceptable to the Administrative
Agent all (but not less than all) of such Lender's Commitment, the Advances
owing to it and its participation in the Facility LCs within the next succeeding
30 days (in the case of clause (i) or clause (ii)), or within the next
succeeding five days (in the case of clauses (iii)). If any such Eligible
Assignee designated by the Borrowers shall fail to consummate such assignment on
terms acceptable to such Lender, or if the Borrowers shall fail to designate any
such Eligible Assignee for all of such Lender's Commitment, Advances and
participation in Facility LCs, then such Lender may (but shall not be required
to) assign such Commitment and Advances to any other Eligible Assignee in
accordance with this Section 8.07 during such period.
(h) Notwithstanding anything to the contrary contained herein, any
Lender (a "Granting Bank") may grant to a special purpose funding vehicle (an
"SPC"), identified as such in writing from time to time by the Granting Bank to
the Administrative Agent and the Borrowers, the option to provide to any
Borrower all or any part of any Advance that such Granting Bank would otherwise
be obligated to make to such Borrower pursuant to this Agreement; provided that
(i) nothing herein shall constitute a commitment by any SPC to make any Advance,
(ii) if an SPC elects not to exercise such option or otherwise fails to provide
all or any part of such Advance, the Granting Bank shall be obligated to make
such Advance pursuant to the terms hereof. The making of an Advance by an SPC
hereunder shall utilize the Commitment of the Granting Bank to the same extent,
and as if, such Advance were made by such Granting Bank. Each party hereto
hereby agrees that no SPC shall be liable for any indemnity or similar payment
obligation under this Agreement (all liability for which shall remain with the
Granting Bank). In furtherance of the foregoing, each party hereto hereby agrees
(which agreement shall survive the termination of this Agreement) that, prior to
the date
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that is one year and one day after the payment in full of all outstanding
commercial paper or other senior indebtedness of any SPC, it will not institute
against, or join any other person in instituting against, such SPC any
bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings
under the laws of the United States or any State thereof. In addition,
notwithstanding anything to the contrary contained in this Section 8.07, any SPC
may (i) with notice to, but without the prior written consent of, the Borrower
and the Administrative Agent and without paying any processing fee therefor,
assign all or a portion of its interests in any Advances to the Granting Bank or
to any financial institutions (consented to by such Borrower and Administrative
Agent, neither of which consents shall be unreasonably withheld or delayed)
providing liquidity and/or credit support to or for the account of such SPC to
support the funding or maintenance of Advances and (ii) disclose on a
confidential basis any non-public information relating to its Advances to any
rating agency, commercial paper dealer or provider of any surety, guarantee or
credit or liquidity enhancement to such SPC. This Section 8.07(g) may not be
amended in any manner which adversely affects a Granting Bank or an SPC without
the written consent of such Granting Bank or SPC.
SECTION 8.08 Governing Law. THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF
PENNSYLVANIA.
SECTION 8.09 Consent to Jurisdiction; Certain Waivers. (a) THE BORROWERS
HEREBY IRREVOCABLY SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF THE COURTS OF THE
COMMONWEALTH OF PENNSYLVANIA AND ANY UNITED STATES DISTRICT COURT SITTING IN THE
COMMONWEALTH OF PENNSYLVANIA IN ANY ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE NOTES AND THE BORROWERS HEREBY IRREVOCABLY
AGREE THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND
DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVE ANY OBJECTION THEY MAY NOW OR
HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN
SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL
LIMIT THE RIGHT OF THE ADMINISTRATIVE AGENT OR ANY LENDER TO BRING PROCEEDINGS
AGAINST ANY BORROWER IN THE COURTS OF ANY OTHER JURISDICTION.
(b) EXCEPT AS PROHIBITED BY LAW, EACH PARTY HERETO HEREBY WAIVES ANY
RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY LITIGATION ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE NOTES ANY SPECIAL, EXEMPLARY, PUNITIVE OR
CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL
DAMAGES.
SECTION 8.10 Execution in Counterparts; Integration. This Agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement. This Agreement constitutes the entire agreement and understanding
among the parties hereto and supersedes all prior and contemporaneous agreements
and understandings, oral or written, relating to the subject matter hereof.
48
SECTION 8.11 Liability Several. No Borrower shall be liable for the
obligations of any other Borrower hereunder.
SECTION 8.12 Termination of Existing Agreement; Existing Letters of
Credit. Exelon, ComEd, PECO, the Lenders which are parties to the Existing
Agreement (which Lenders constitute the "Majority Lenders" as defined in the
Existing Agreement) and Bank One, as Administrative Agent under the Existing
Agreement, agree that, concurrently with the making of the initial Loans
hereunder, (a) the commitments under the Existing Agreement shall terminate and
be of no further force or effect (without regard to any requirement in Section
2.04 of the Existing Agreement for prior notice of termination of the
commitments thereunder), (b) the "Facility LCs" issued under the Existing
Agreement for the account of Exelon and PECO (the "Existing Letters of Credit")
shall be deemed to be Facility LCs hereunder and (c) the "Facility LCs" issued
under the Existing Agreement for the account of ComEd (the "ComEd Letters of
Credit") shall be deemed to have been issued by Bank One for its own account.
The parties hereto agree that (i) concurrently with the making of the initial
Loans hereunder, the Existing Letters of Credit shall be deemed to be Facility
LCs hereunder as if the Existing Letters of Credit were issued hereunder on the
Closing Date and (ii) on the first date on which all conditions precedent to the
initial Credit Extension to ComEd (including the condition precedent set forth
in Section 3.04) have been satisfied and no Event of Default or Unmatured Event
of Default exists (and subject to availability under the ComEd Sublimit), the
ComEd Letters of Credit shall be deemed to be Facility LCs hereunder as if the
ComEd Letters of Credit had been issued hereunder on such date.
[Remainder of the page intentionally left blank]
49
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
EXELON CORPORATION
By: ____________________________________
J. Barry Mitchell
Vice President & Treasurer
COMMONWEALTH EDISON COMPANY
By: ____________________________________
J. Barry Mitchell
Vice President & Treasurer
PECO ENERGY COMPANY
By: ____________________________________
J. Barry Mitchell
Vice President & Treasurer
EXELON GENERATION COMPANY LLC
By: ____________________________________
J. Barry Mitchell
Vice President & Treasurer
This is a signature page to the 364-Day Credit Agreement dated as of December
12, 2001 among Exelon Corporation, Commonwealth Edison Company, Exelon
Generation LLC and PECO Energy Company as Borrowers, various financial
institutions, as Lenders, Bank One, NA, as Administrative Agent, ABN AMRO Bank,
N.V. and Barclays Bank plc, as Co-Documentation Agents, and Citibank, N.A. and
First Union National Bank, as Co-Syndication Agents.
S-1
THE LENDERS
COMMITMENT AMOUNT
$113,500,000 BANK ONE, NA (Main Office Chicago),
as Administrative Agent, as LC Issuer
and as a Lender
By: ____________________________________
Name: Madeline Pember
Title: Authorized Agent
This is a signature page to the 364-Day Credit Agreement dated as of December
12, 2001 among Exelon Corporation, Commonwealth Edison Company, Exelon
Generation LLC and PECO Energy Company as Borrowers, various financial
institutions, as Lenders, Bank One, NA, as Administrative Agent, ABN AMRO Bank,
N.V. and Barclays Bank plc, as Co-Documentation Agents, and Citibank, N.A. and
First Union National Bank, as Co-Syndication Agents.
S-2
COMMITMENT AMOUNT
$113,500,000 BARCLAYS BANK PLC,
as Co-Documentation Agent and as a Lender
By: _____________________________________
Name: _______________________________
Title: ______________________________
This is a signature page to the 364-Day Credit Agreement dated as of December
12, 2001 among Exelon Corporation, Commonwealth Edison Company, Exelon
Generation LLC and PECO Energy Company as Borrowers, various financial
institutions, as Lenders, Bank One, NA, as Administrative Agent, ABN AMRO Bank,
N.V. and Barclays Bank plc, as Co-Documentation Agents, and Citibank, N.A. and
First Union National Bank, as Co-Syndication Agents.
S-3
COMMITMENT AMOUNT
$113,500,000 FIRST UNION NATIONAL BANK,
as Co-Syndication Agent and as a Lender
By: ____________________________________
Name: ______________________________
Title: _____________________________
This is a signature page to the 364-Day Credit Agreement dated as of December
12, 2001 among Exelon Corporation, Commonwealth Edison Company, Exelon
Generation LLC and PECO Energy Company as Borrowers, various financial
institutions, as Lenders, Bank One, NA, as Administrative Agent, ABN AMRO Bank,
N.V. and Barclays Bank plc, as Co-Documentation Agents, and Citibank, N.A. and
First Union National Bank, as Co-Syndication Agents.
S-4
COMMITMENT AMOUNT
$113,500,000 CITIBANK, N.A., as Co-Syndication Agent
and as a Lender
By: ____________________________________
Name: ______________________________
Title: _____________________________
This is a signature page to the 364-Day Credit Agreement dated as of December
12, 2001 among Exelon Corporation, Commonwealth Edison Company, Exelon
Generation LLC and PECO Energy Company as Borrowers, various financial
institutions, as Lenders, Bank One, NA, as Administrative Agent, ABN AMRO Bank,
N.V. and Barclays Bank plc, as Co-Documentation Agents, and Citibank, N.A. and
First Union National Bank, as Co-Syndication Agents.
S-5
COMMITMENT AMOUNT
$113,500,000 ABN AMRO BANK N.V., as Co-Documentation
Agent and as a Lender
By: ____________________________________
Name: ______________________________
Title: _____________________________
By: ____________________________________
Name: ______________________________
Title: _____________________________
This is a signature page to the 364-Day Credit Agreement dated as of December
12, 2001 among Exelon Corporation, Commonwealth Edison Company, Exelon
Generation LLC and PECO Energy Company as Borrowers, various financial
institutions, as Lenders, Bank One, NA, as Administrative Agent, ABN AMRO Bank,
N.V. and Barclays Bank plc, as Co-Documentation Agents, and Citibank, N.A. and
First Union National Bank, as Co-Syndication Agents.
S-6
COMMITMENT AMOUNT
$113,500,000 THE BANK OF NOVA SCOTIA, as a Lender
By: ____________________________________
Name: ______________________________
Title: _____________________________
This is a signature page to the 364-Day Credit Agreement dated as of December
12, 2001 among Exelon Corporation, Commonwealth Edison Company, Exelon
Generation LLC and PECO Energy Company as Borrowers, various financial
institutions, as Lenders, Bank One, NA, as Administrative Agent, ABN AMRO Bank,
N.V. and Barclays Bank plc, as Co-Documentation Agents, and Citibank, N.A. and
First Union National Bank, as Co-Syndication Agents.
S-7
COMMITMENT AMOUNT
$57,000,000 THE BANK OF NEW YORK, as a Lender
By: ____________________________________
Name: ______________________________
Title: _____________________________
This is a signature page to the 364-Day Credit Agreement dated as of December
12, 2001 among Exelon Corporation, Commonwealth Edison Company, Exelon
Generation LLC and PECO Energy Company as Borrowers, various financial
institutions, as Lenders, Bank One, NA, as Administrative Agent, ABN AMRO Bank,
N.V. and Barclays Bank plc, as Co-Documentation Agents, and Citibank, N.A. and
First Union National Bank, as Co-Syndication Agents.
S-8
COMMITMENT AMOUNT
$57,000,000 MELLON BANK, N.A., as a Lender
By: ____________________________________
Name: ______________________________
Title: _____________________________
This is a signature page to the 364-Day Credit Agreement dated as of December
12, 2001 among Exelon Corporation, Commonwealth Edison Company, Exelon
Generation LLC and PECO Energy Company as Borrowers, various financial
institutions, as Lenders, Bank One, NA, as Administrative Agent, ABN AMRO Bank,
N.V. and Barclays Bank plc, as Co-Documentation Agents, and Citibank, N.A. and
First Union National Bank, as Co-Syndication Agents.
S-9
COMMITMENT AMOUNT
$75,000,000 BAYERISCHE LANDESBANK
GIROZENTRALE, CAYMAN ISLANDS
BRANCH, as a Lender
By: ____________________________________
Name: ______________________________
Title: _____________________________
This is a signature page to the 364-Day Credit Agreement dated as of December
12, 2001 among Exelon Corporation, Commonwealth Edison Company, Exelon
Generation LLC and PECO Energy Company as Borrowers, various financial
institutions, as Lenders, Bank One, NA, as Administrative Agent, ABN AMRO Bank,
N.V. and Barclays Bank plc, as Co-Documentation Agents, and Citibank, N.A. and
First Union National Bank, as Co-Syndication Agents.
S-10
COMMITMENT AMOUNT
$113,500,000 JPMORGAN CHASE BANK, as a Lender
By: ____________________________________
Name: ______________________________
Title: _____________________________
This is a signature page to the 364-Day Credit Agreement dated as of December
12, 2001 among Exelon Corporation, Commonwealth Edison Company, Exelon
Generation LLC and PECO Energy Company as Borrowers, various financial
institutions, as Lenders, Bank One, NA, as Administrative Agent, ABN AMRO Bank,
N.V. and Barclays Bank plc, as Co-Documentation Agents, and Citibank, N.A. and
First Union National Bank, as Co-Syndication Agents.
S-11
COMMITMENT AMOUNT
$113,500,000 BNP PARIBAS, as a Lender
By: ____________________________________
Name: ______________________________
Title: _____________________________
This is a signature page to the 364-Day Credit Agreement dated as of December
12, 2001 among Exelon Corporation, Commonwealth Edison Company, Exelon
Generation LLC and PECO Energy Company as Borrowers, various financial
institutions, as Lenders, Bank One, NA, as Administrative Agent, ABN AMRO Bank,
N.V. and Barclays Bank plc, as Co-Documentation Agents, and Citibank, N.A. and
First Union National Bank, as Co-Syndication Agents.
S-12
COMMITMENT AMOUNT
$57,000,000 THE NORTHERN TRUST COMPANY, as a
Lender
By: ____________________________________
Name: ______________________________
Title: _____________________________
This is a signature page to the 364-Day Credit Agreement dated as of December
12, 2001 among Exelon Corporation, Commonwealth Edison Company, Exelon
Generation LLC and PECO Energy Company as Borrowers, various financial
institutions, as Lenders, Bank One, NA, as Administrative Agent, ABN AMRO Bank,
N.V. and Barclays Bank plc, as Co-Documentation Agents, and Citibank, N.A. and
First Union National Bank, as Co-Syndication Agents.
S-13
COMMITMENT AMOUNT
$112,500,000 BAYERISCHE HYPO- UND VEREINSBANK AG,
NEW YORK BRANCH, as a Lender
By: ____________________________________
Name: ______________________________
Title: _____________________________
By: ____________________________________
Name: ______________________________
Title: _____________________________
By: ____________________________________
Name: ______________________________
Title: _____________________________
This is a signature page to the 364-Day Credit Agreement dated as of December
12, 2001 among Exelon Corporation, Commonwealth Edison Company, Exelon
Generation LLC and PECO Energy Company as Borrowers, various financial
institutions, as Lenders, Bank One, NA, as Administrative Agent, ABN AMRO Bank,
N.V. and Barclays Bank plc, as Co-Documentation Agents, and Citibank, N.A. and
First Union National Bank, as Co-Syndication Agents.
S-14
COMMITMENT AMOUNT
$114,000,000 AUSTRALIA AND NEW ZEALAND BANKING
GROUP LIMITED, as a Lender
By: ____________________________________
Name: ______________________________
Title: _____________________________
This is a signature page to the 364-Day Credit Agreement dated as of December
12, 2001 among Exelon Corporation, Commonwealth Edison Company, Exelon
Generation LLC and PECO Energy Company as Borrowers, various financial
institutions, as Lenders, Bank One, NA, as Administrative Agent, ABN AMRO Bank,
N.V. and Barclays Bank plc, as Co-Documentation Agents, and Citibank, N.A. and
First Union National Bank, as Co-Syndication Agents.
S-15
COMMITMENT AMOUNT
$62,500,000 SUMITOMO MITSUI BANKING
CORPORATION, as a Lender
By: ____________________________________
Name: ______________________________
Title: _____________________________
This is a signature page to the 364-Day Credit Agreement dated as of December
12, 2001 among Exelon Corporation, Commonwealth Edison Company, Exelon
Generation LLC and PECO Energy Company as Borrowers, various financial
institutions, as Lenders, Bank One, NA, as Administrative Agent, ABN AMRO Bank,
N.V. and Barclays Bank plc, as Co-Documentation Agents, and Citibank, N.A. and
First Union National Bank, as Co-Syndication Agents.
S-16
COMMITMENT AMOUNT
$57,000,000 DRESDNER BANK AG, NEW YORK AND
GRAND CAYMAN BRANCHES, as a Lender
By: ____________________________________
Name: ______________________________
Title: _____________________________
This is a signature page to the 364-Day Credit Agreement dated as of December
12, 2001 among Exelon Corporation, Commonwealth Edison Company, Exelon
Generation LLC and PECO Energy Company as Borrowers, various financial
institutions, as Lenders, Bank One, NA, as Administrative Agent, ABN AMRO Bank,
N.V. and Barclays Bank plc, as Co-Documentation Agents, and Citibank, N.A. and
First Union National Bank, as Co-Syndication Agents.
S-17
SCHEDULE I
364-Day Credit Agreement dated as of December 12, 2001, among Exelon
Corporation, Commonwealth Edison Company, Exelon Generation Company, LLC and
PECO Energy Company, as Borrowers, various financial institutions, as Lenders,
Bank One, NA, as Administrative Agent, ABN AMRO Bank, N.V. and Barclays Bank
plc, as Co-Documentation Agents, and Citibank, N.A. and First Union National
Bank, as Co-Syndication Agents.
Eurodollar
Name of Lender Domestic Lending Office Lending Office
- -------------- ----------------------- --------------
Bank One, NA 1 Bank One Plaza Same
Mail Suite 0634, 1FNP-10
Chicago, IL 60670
Attn: Gwendolyn Watson
Phone: (312) 732-4509
Fax: (312) 732-4840
Citibank, N.A. 399 Park Avenue Same
New York, NY 10043
Attn: Robert J. Harrity, Jr.
Phone: (212) 816-8554
Fax: (212) 816-8098
First Union National Bank 1 First Union Center Same
301 S. College St.
Charlotte, NC 28288
Attn: Robert Wetteroff
Phone: (704) 374-6221
Fax: (704) 374-6249
ABN AMRO Bank N.V. 208 South LaSalle Street Same
Suite 1500
Chicago, IL 60604-1003
Attn: Ken Keck
Phone: (312) 992-5110
Fax: (312) 992-5111
Barclays Bank plc 222 Broadway, 8th Floor Same
New York, NY 10038
Attn: Sydney Dennis
Phone: (212) 412-2470
Fax: (212) 412-7511
The Bank of New York One Wall St., 19th Floor Same
New York, NY 10286
Attn: John Watt
Phone: (212) 635-7533
Fax: (212) 635-7923
Eurodollar
Name of Lender Domestic Lending Office Lending Office
- -------------- ----------------------- --------------
Mellon Bank, N.A. One Mellon Bank Center Same
Room 4530
Pittsburgh, PA 15258-0001
Attn: Richard A. Matthews
Phone: (412) 234-9759
Fax: (412) 236-1840
Bayerische Landesbank 560 Lexington Ave, 17th Floor Same
Girozentrale, Cayman New York, NY 10022
Islands Branch Attn: Sean O'Sullivan
Phone: (212) 310-9913
Fax: (212) 310-9868
JPMorgan Chase Bank 270 Park Avenue Same
New York, NY 10017
Attn: Peter Ling
Phone: (212) 270-4676
Fax: (212) 270-3089
Australia and New Zealand 1177 Avenue of the Americas Same
Banking Group Limited 6th Floor
New York, NY 10036
Attn: Arlene Esin
Phone: (212) 801-9827
Fax: (212) 536-9278
The Northern Trust Company 50 S. LaSalle St. Same
Chicago, IL 60675
Attn: Nicole Boehm
Phone: (312) 444-3640
Fax: (312) 630-6062
The Bank of Nova Scotia 600 Peachtree Street, Same
Suite 2700
Atlanta, GA 30308
Attn: John Malloy
Phone: (312) 201-4111
Fax: (312) 201-4108
BNP Paribas 787 Seventh Avenue, Same
31st Floor
New York, NY 10019
Attn: Sean Finnegan
Phone: (212) 841-2310
Fax: (212) 841-2203
Eurodollar
Name of Lender Domestic Lending Office Lending Office
- -------------- ----------------------- --------------
Bayerische Hypo- und 150 East 42nd Street Same
Vereinsbank AG, New New York, NY 10017
York Branch Attn: William Hunter
Phone: (212) 672-5340
Fax: (212) 672-5530
Sumitomo Mitsui Banking 277 Park Ave. Same
Corporation New York, NY 10172
Attn: David Buck
Phone: (212) 224-4168
Fax: (212) 224-4042
Dresdner Bank AG 75 Wall St., 25th Floor Same
New York, NY 10005-2889
Attn: Fred C. Thurston
Phone: (212) 429-2029
Fax: (212) 429-2192
SCHEDULE II
PRICING SCHEDULE
The "Applicable Margin," the "Facility Fee Rate" the "Utilization Fee
Rate" and the "LC Fee Rate" for any day are the respective percentages set forth
below in the applicable row under the column corresponding to the Status that
exists on such day:
- --------------------------------------------------------------------------------
Applicable Margin
Status and LC Fee Rate Facility Fee Rate Utilization Fee Rate
- --------------------------------------------------------------------------------
Level I 0.400% 0.100% 0.100%
- --------------------------------------------------------------------------------
Level II 0.500% 0.125% 0.125%
- --------------------------------------------------------------------------------
Level III 0.600% 0.150% 0.125%
- --------------------------------------------------------------------------------
Level IV 0.825% 0.175% 0.125%
- --------------------------------------------------------------------------------
Level V 0.925% 0.200% 0.250%
- --------------------------------------------------------------------------------
The Applicable Margin, the Facility Fee Rate, the Utilization Fee Rate and
the LC Fee Rate shall be determined separately for each Borrower in accordance
with the foregoing table based on the Status for such Borrower. The Status in
effect for any Borrower on any date for the purposes of this Pricing Schedule is
based on the Moody's Rating and the S&P Rating in effect at the close of
business on such date.
For the purposes of the foregoing (but subject to the final paragraph of
this Pricing Schedule):
"Level I Status" exists at any date for a Borrower if, on such date, such
Borrower's Moody's Rating is A3 or better or such Borrower's S&P Rating is A- or
better.
"Level II Status" exists at any date for a Borrower if, on such date, (i)
Level I Status does not exist for such Borrower and (ii) such Borrower's Moody's
Rating is Baa1 or better or such Borrower's S&P Rating is BBB+ or better.
"Level III Status" exists at any date for a Borrower if, on such date, (i)
neither Level I Status nor Level II Status exists for such Borrower and (ii)
such Borrower's Moody's Rating is Baa2 or better or such Borrower's S&P Rating
is BBB or better.
"Level IV Status" exists at any date if, on such date, (i) none of Level I
Status, Level II Status or Level III Status exists for such Borrower and (ii)
such Borrower's Moody's Rating is Baa3 or better or such Borrower's S&P Rating
is BBB- or better.
"Level V Status" exists at any date for a Borrower if, on such date, none
of Level I Status, Level II Status, Level III Status or Level IV Status exists
for such Borrower.
"Status" means Level I Status, Level II Status, Level III Status, Level IV
Status or Level V Status.
If the S&P Rating and the Moody's Rating for a Borrower create a split-rated
situation and the ratings differential is one level, the higher rating will
apply. If the differential is two levels or more, the intermediate rating at the
midpoint will apply. If there is no midpoint, the higher of the two intermediate
ratings will apply. If a Borrower has no Moody's Rating or no S&P Rating, Level
V Status shall exist for such Borrower.
ARTICLE I DEFINITIONS AND ACCOUNTING TERMS.................................. 1
Section 1.01 Certain Defined Terms.............................. 1
Section 1.02 Computation of Time Periods........................ 12
Section 1.03 Accounting Principles.............................. 12
Section 1.04 Section References................................. 12
ARTICLE II AMOUNTS AND TERMS OF THE COMMITMENTS............................. 12
Section 2.01 Commitments........................................ 12
Section 2.02 Procedures for Advances; Limitations on Borrowings. 13
Section 2.03 Facility and Utilization Fees...................... 14
Section 2.04 Reduction of Commitment Amounts; Adjustment of
Sublimits.......................................... 14
Section 2.05 Repayment of Advances.............................. 15
Section 2.06 Interest on Advances............................... 15
Section 2.07 Additional Interest on Eurodollar Advances......... 16
Section 2.08 Interest Rate Determination........................ 16
Section 2.09 Continuation and Conversion of Advances............ 17
Section 2.10 Prepayments........................................ 17
Section 2.11 Increased Costs.................................... 18
Section 2.12 Illegality......................................... 19
Section 2.13 Payments and Computations.......................... 20
Section 2.14 Taxes.............................................. 21
Section 2.15 Sharing of Payments, Etc........................... 23
Section 2.16 Facility LCs....................................... 24
Section 2.17 Extension of Commitment Termination Date........... 27
ARTICLE III CONDITIONS TO CREDIT EXTENSIONS................................. 28
Section 3.01 Conditions Precedent to Initial Credit Extensions.. 28
Section 3.02 Conditions Precedent to All Credit Extensions...... 29
Section 3.03 Additional Conditions Precedent to Initial Credit
Extension to Genco................................. 29
Section 3.04 Additional Condition Precedent to Initial Credit
Extension to ComEd................................. 29
ARTICLE IV REPRESENTATIONS AND WARRANTIES................................... 30
Section 4.01 Representations and Warranties of the Borrowers.... 30
ARTICLE V COVENANTS OF THE BORROWERS........................................ 32
Section 5.01 Affirmative Covenants.............................. 32
Section 5.02 Negative Covenants................................. 35
ARTICLE VI EVENTS OF DEFAULT................................................ 37
Section 6.01 Events of Default.................................. 37
ARTICLE VII THE AGENTS...................................................... 39
Section 7.01 Authorization and Action........................... 39
Section 7.02 Agents' Reliance, Etc.............................. 40
Section 7.03 Agents and Affiliates.............................. 40
Section 7.04 Lender Credit Decision............................. 40
Section 7.05 Indemnification.................................... 41
Section 7.06 Successor Administrative Agent..................... 41
Section 7.07 Co-Documentation Agents, Co-Syndication Agents
and Lead Arranger.................................. 41
ARTICLE VIII MISCELLANEOUS.................................................. 42
Section 8.01 Amendments, Etc.................................... 42
Section 8.02 Notices, Etc....................................... 42
Section 8.03 No Waiver; Remedies................................ 42
Section 8.04 Costs and Expenses; Indemnification................ 43
Section 8.05 Right of Set-off................................... 44
Section 8.06 Binding Effect..................................... 44
Section 8.07 Assignments and Participations..................... 44
Section 8.08 Governing Law...................................... 48
Section 8.09 Consent to Jurisdiction; Certain Waivers........... 48
Section 8.10 Execution in Counterparts; Integration............. 48
Section 8.11 Liability Several.................................. 49
Section 8.12 Termination of Existing Agreement.................. 49
Schedule I List of Applicable Lending Offices
Schedule II Pricing Schedule
Exhibit A Form of Note
Exhibit B Form of Notice of Borrowing
Exhibit C Form of Assignment and Acceptance
Exhibit D-1 Form of Opinion of Special Counsel for the Borrowers
Exhibit D-2 Form of Opinion of Special Counsel for ComEd
Exhibit E Form of Annual and Quarterly Compliance Certificate
Exhibit 4-2-1
================================================================================
PECO ENERGY COMPANY
TO
FIRST UNION NATIONAL BANK, TRUSTEE
----------------------
NINETY-SEVENTH SUPPLEMENTAL
INDENTURE DATED AS OF
OCTOBER 15, 2001
TO
FIRST AND REFUNDING MORTGAGE
OF
THE COUNTIES GAS AND ELECTRIC
COMPANY
TO
FIDELITY TRUST COMPANY, TRUSTEE
DATED MAY 1, 1923
------------------
5.95% SERIES DUE 2011
================================================================================
THIS SUPPLEMENTAL INDENTURE dated as of October 15, 2001, by and between
PECO ENERGY COMPANY, a corporation organized and existing under the laws of the
Commonwealth of Pennsylvania (hereinafter called the Company), party of the
first part, and FIRST UNION NATIONAL BANK, a national banking association
organized and existing under the laws of the United States of America
(hereinafter called the Trustee), as Trustee under the Mortgage hereinafter
mentioned, party of the second part, Witnesseth that
WHEREAS, The Counties Gas and Electric Company (hereinafter called
Counties Company), a Pennsylvania corporation and a predecessor to the Company,
duly executed and delivered to Fidelity Trust Company, a Pennsylvania
corporation to which the Trustee is successor, as Trustee, a certain indenture
of mortgage and deed of trust dated May 1, 1923 (hereinafter called the
Mortgage), to provide for the issue of, and to secure, its First and Refunding
Mortgage Bonds, issuable in series and without limit as to principal amount
except as provided in the Mortgage, the initial series of Bonds being designated
the 6% Series of 1923, and the terms and provisions of other series of bonds
secured by the Mortgage to be determined as provided in the Mortgage; and
WHEREAS, thereafter Counties Company, Philadelphia Suburban-Counties Gas
and Electric Company (hereinafter called Suburban Company), and the Company,
respectively, have from time to time executed and delivered indentures
supplemental to the Mortgage, providing for the creation of additional series of
bonds secured by the Mortgage and for amendment of certain of the terms and
provisions of the Mortgage and of indentures supplemental thereto, or evidencing
the succession of Suburban Company to Counties Company and of the Company to
Suburban Company, such indentures supplemental to the Mortgage, the respective
dates, parties thereto, and purposes thereof, being as follows:
1
Supplemental Indenture
and Date Parties Providing for:
- ---------------------- ------- -------------
First Counties Company to Bonds of 5% Series of
September 1, 1926 Fidelity-Philadelphia 1926
Trust Company
(Successor to Fidelity
Trust Company)
Second Suburban Company to Evidencing succession of
May 1, 1927 Fidelity-Philadelphia Suburban Company to
Trust Company Counties Company
Third Suburban Company to Bonds of 4-1/2% Series
May 1, 1927 Fidelity-Philadelphia due 1957; amendment of
Trust Company certain provisions of
Mortgage
Fourth Suburban Company to Additional Bonds of
November 1, 1927 Fidelity-Philadelphia 4-1/2% Series due 1957
Trust Company
Fifth Company to Evidencing succession of
January 31, 1931 Fidelity-Philadelphia Company to
Trust Company Suburban Company
Sixth Company to Bonds of 4% Series
February 1, 1931 Fidelity-Philadelphia due 1971
Trust Company
Seventh Company to Bonds of 3-1/2% Series
March 1, 1937 Fidelity-Philadelphia due 1967; amendment of
Trust Company certain provisions of
Mortgage
Eighth Company to Bonds of 2-3/4% Series
December 1, 1941 Fidelity-Philadelphia due 1971; amendment of
Trust Company certain provisions of
Mortgage
Ninth Company to Bonds of 2-3/4% Series
November 1, 1944 Fidelity-Philadelphia due 1967 and 2-3/4% Series
Trust Company due 1974; amendment of
certain provisions of
Mortgage
Tenth Company to Bonds of 2-3/4% Series
December 1, 1946 Fidelity-Philadelphia due 1981; amendment of
Trust Company certain provisions of
Mortgage*
2
Supplemental Indenture
and Date Parties Providing for:
- ---------------------- ------- -------------
Eleventh Company to Bonds of 2-7/8% Series
February 1, 1948 Fidelity-Philadelphia due 1978*
Trust Company
Twelfth Company to Bonds of 3-1/4% Series
January 1, 1952 Fidelity-Philadelphia due 1982*
Trust Company
Thirteenth Company to Bonds of 3-7/8% Series
May 1, 1953 Fidelity-Philadelphia due 1983*
Trust Company
Fourteenth Company to Bonds of 3-1/8% Series
December 1, 1953 Fidelity-Philadelphia due 1983*
Trust Company
Fifteenth Company to Bonds of 3-1/8% Series
April 1, 1955 Fidelity-Philadelphia due 1985*
Trust Company
Sixteenth Company to Bonds of 4-5/8% Series
September 1, 1957 Fidelity-Philadelphia due 1987; amendment of certain
Trust Company provisions of Mortgage*
Seventeenth Company to Bonds of 3-3/4% Series
May 1, 1958 Fidelity-Philadelphia due 1988; amendment of certain
Trust Company provisions of Mortgage*
Eighteenth Company to Bonds of 4-3/8% Series
December 1, 1958 Fidelity-Philadelphia due 1986*
Trust Company
Nineteenth Company to Bonds of 5% Series
October 1, 1959 Fidelity-Philadelphia due 1989*
Trust Company
Twentieth Company to Bonds of 4-1/2% Series
May 1, 1964 Fidelity-Philadelphia due 1994*
Trust Company
Twenty-first Company to Bonds of 6% Series due
October 15, 1966 Fidelity-Philadelphia 1968-1973*
Trust Company
Twenty-second Company to The Fidelity Bank Bonds of 5-1/4 % Series due
June 1, 1967 (formerly 1968-1973 and 5-3/4 %
Fidelity-Philadelphia Series due 1977*
Trust Company)
Twenty-third Company to The Fidelity Bonds of 6-1/8 % Series
October 1, 1957 Bank due 1997*
3
Supplemental Indenture
and Date Parties Providing for:
- ---------------------- ------- -------------
Twenty-fourth Company to The Fidelity Bonds of 6-1/2% Series
March 1, 1968 Bank due 1993; amendment of
Article XIV of
Mortgage*
Twenty-fifth Company to The Fidelity Bonds of 1968 Series due
September 10, 1968 Bank 1969-1976*
Twenty-sixth Company to The Fidelity Bonds of 8% Series due
August 15, 1969 Bank 1975*
Twenty-seventh Company to The Fidelity Bonds of 9% Series due
February 1, 1970 Bank 1995*
Twenty-eighth Company to The Fidelity Bonds of 8-1/2% Series
May 1, 1970 Bank due 1976*
Twenty-ninth Company to The Fidelity Bonds of 7-3/4% Series
December 15, 1970 Bank due 2000*
Thirtieth Company to The Fidelity Bonds of 8-1/4% Series
August 1, 1971 Bank due 1996*
Thirty-first Company to The Fidelity Bonds of 7-3/8% Series
December 15, 1971 Bank due 2001; amendment of
Article XI of Mortgage*
Thirty-second Company to The Fidelity Bonds of 7-1/2% Series
June 15, 1972 Bank due 1998*
Thirty-third Company to The Fidelity Bonds of 7-1/2% Series
January 15, 1973 Bank due 1999*
Thirty-fourth Company to The Fidelity Bonds of 8-1/2% Series
January 15, 1974 Bank due 2004
Thirty-fifth Company to The Fidelity Bonds of 11% Series
October 15, 1974 Bank due 1980*
Thirty-sixth Company to The Fidelity Bonds of 11-5/8% Series
April 15, 1975 Bank due 2000*
Thirty-seventh Company to The Fidelity Bonds of 11% Series due
August 1, 1975 Bank 2000*
Thirty-eighth Company to The Fidelity Bonds of 9-1/8% Series
March 1, 1976 Bank due 2006*
Thirty-ninth Company to The Fidelity Bonds of 9-5/8% Series
August 1, 1976 Bank due 2002*
4
Supplemental Indenture
and Date Parties Providing for:
- ---------------------- ------- -------------
Fortieth Company to The Fidelity Bonds of Pollution
February 1, 1977 Bank Control Series A
and Pollution
Control Series B*
Forty-first Company to The Fidelity Bonds of 8-5/8% Series
March 15, 1977 Bank due 2007*
Forty-second Company to The Fidelity Bonds of 8-5/8% Series
July 15, 1977 Bank due 2003*
Forty-third Company to The Fidelity Bonds of 9-1/8% Series
March 15, 1978 Bank due 2008*
Forty-fourth Company to The Fidelity Bonds of 12-1/2% Series
October 15, 1979 Bank due 2005*
Forty-fifth Company to The Fidelity Bonds of 13-3/4% Series
October 15, 1980 Bank due 1992*
Forty-sixth Company to The Fidelity Bonds of 15-1/4% Series
March 1, 1981 Bank due 1996; amendment of
Article VIII of
Mortgage*
Forty-seventh Company to The Fidelity Bonds of 15% Series due
March 1, 1981 Bank 1996; amendment of
Article VIII of
Mortgage*
Forty-eighth Company to The Fidelity Bonds of 17-5/8% Series
July 1, 1981 Bank due 2011*
Forty-ninth Company to The Fidelity Bonds of 18-3/4% Series
September 15, 1981 Bank due 2009*
Fiftieth Company to The Fidelity Bonds of 18% Series due
April 1, 1982 Bank 2012*
Fifty-first Company to The Fidelity Bonds of 15-3/8% Series
October 1, 1982 Bank due 2010*
Fifty-second Company to The Fidelity Bonds of 13-3/8% Series
June 15, 1983 Bank due 2013*
Fifty-third Company to Fidelity Bank, Bonds of 13.05% Series
November 15, 1984 National Association due 1994; amendment
(formerly The Fidelity Bank) of Article VIII of
Mortgage*
5
Supplemental Indenture
and Date Parties Providing for:
- ---------------------- ------- -------------
Fifty-fourth Company to Fidelity Bank, Bonds of 14% Series due
December 1, 1984 National Association 1988-1994; amendment
of Article VIII of
Mortgage*
Fifty-fifth Company to Fidelity Bank, Bonds of Pollution
May 15, 1985 National Association Control Series C*
Fifty-sixth Company to Fidelity Bank, Bonds of Pollution
October 1, 1985 National Association Control Series D*
Fifty-seventh Company to Fidelity Bank, Bonds of 10-7/8% Series
November 15, 1985 National Association due 1995*
Fifty-eight Company to Fidelity Bank, Bonds of 11-3/4% Series
November 15, 1985 National Association due 2014*
Fifty-ninth Company to Fidelity Bank, Bonds of Pollution
June 1, 1986 National Association Control Series E*
Sixtieth Company to Fidelity Bank, Bonds of 10-1/4% Series
November 1, 1986 National Association due 2016*
Sixty-first Company to Fidelity Bank, Bonds of 8-3/4% Series
November 1, 1986 National Association due 1994*
Sixty-second Company to Fidelity Bank, Bonds of 9-3/8% Series
April 1, 1987 National Association due 2017*
Sixty-third Company to Fidelity Bank, Bonds of 11% Series due
July 15, 1987 National Association 2016*
Sixty-fourth Company to Fidelity Bank, Bonds of 10% Series due
July 15, 1987 National Association 1997*
Sixty-fifth Company to Fidelity Bank, Bonds of 10-1/4% Series
August 1, 1987 National Association due 2007*
Sixty-sixth Company to Fidelity Bank, Bonds of 11% Series due
October 15, 1987 National Association 1997*
Sixty-seventh Company to Fidelity Bank, Bonds of 12-1/8% Series
October 15, 1987 National Association due 2016*
Sixty-eighth Company to Fidelity Bank, Bonds of 10% Series due
April 15, 1988 National Association 1998*
Sixty-ninth Company to Fidelity Bank, Bonds of 11% Series due
April 15, 1988 National Association 2018*
6
Supplemental Indenture
and Date Parties Providing for:
- ---------------------- ------- -------------
Seventieth Company to Fidelity Bank, Bonds of 10% Series due
June 15, 1989 National Association 2019*
Seventy-first Company to Fidelity Bank, Bonds of 9-7/8% Series
October 1, 1989 National Association due 2019*
Seventy-second Company to Fidelity Bank, Bonds of 9-1/4% Series
October 1, 1989 National Association due 1999*
Seventy-third Company to Fidelity Bank, Medium-Term Note
October 1, 1989 National Association Series A*
Seventy-fourth Company to Fidelity Bank, Bonds of 10-1/2% Series
October 15, 1990 National Association due 2020*
Seventy-fifth Company to Fidelity Bank, Bonds of 10% Series due
October 15, 1990 National Association 2000*
Seventy-sixth Company to Fidelity Bank, Bonds of Pollution
April 1, 1991 National Association Control Series F
and Pollution
Control Series G*
Seventy-seventh Company to Fidelity Bank, Bonds of Pollution
December 1, 1991 National Association Control Series H*
Seventy-eighth Company to Fidelity Bank, Bonds of 7-1/2% 1992
January 15, 1992 National Association Series due 1999*
Seventy-ninth Company to Fidelity Bank, Bonds of 8% Series due
April 1, 1992 National Association 2002*
Eightieth Company to Fidelity Bank, Bonds of 8-3/4% Series
April 1, 1992 National Association due 2022*
Eighty-first Company to Fidelity Bank, Bonds of Pollution
June 1, 1992 National Association Control Series I*
Eighty-second Company to Fidelity Bank, Bonds of 8-5/8% Series
June 1, 1992 National Association due 2022*
Eighty-third Company to Fidelity Bank, Bonds of 7-1/2% Series
July 15, 1992 National Association due 2002*
Eighty-fourth Company to Fidelity Bank, Bonds of 8-1/4% Series
September 1, 1992 National Association due 2022*
Eighty-fifth Company to Fidelity Bank, Bonds of 7-1/8% Series
September 1, 1992 National Association due 2002*
7
Supplemental Indenture
and Date Parties Providing for:
- ---------------------- ------- -------------
Eighty-sixth Company to Fidelity Bank, Bonds of 6-5/8% Series
March 1, 1993 National Association due 2003*
Eighty-Seventh Company to Fidelity Bank, Bonds of 7-3/4% Series
March 1, 1993 National Association due 2023*
Eighty-eighth Company to Fidelity Bank, Bonds of Pollution
March 1, 1993 National Association Control Series J,
Pollution Control
Series K, Pollution
Control Series L
and Pollution Control
Series M*
Eighty-ninth Company to Fidelity Bank, Bonds of 6-1/2% Series
May 1, 1993 National Association due 2003*
Ninetieth Company to Fidelity Bank, Bonds of 7-3/4% Series
May 1, 1993 National Association 2 due 2023*
Ninety-first Company to First Fidelity Bank, Bonds of 7-1/8% Series
August 15, 1993 N.A., Pennsylvania due 2023*
Ninety-second Company to First Fidelity Bank, Bonds of 6-3/8% Series
August 15, 1993 N.A., Pennsylvania due 2005*
Ninety-third Company to First Fidelity Bank, Bonds of 5-3/8% Series
August 15, 1993 N.A., Pennsylvania due 1998*
Ninety-fourth Company to First Fidelity Bank, Bonds of 7-1/4% Series
November 1, 1993 N.A., Pennsylvania due 2024*
Ninety-fifth Company to First Fidelity Bank, Bonds of 5-5/8% Series
November 1, 1993 N.A., Pennsylvania due 2001*
Ninety-sixth Company to First Fidelity Bank, Medium Term Note Series B*
May 1, 1995 N.A., Pennsylvania
*And amendment of certain provisions of the Ninth Supplemental Indenture.
8
WHEREAS, the respective principal amounts of the bonds of each series
presently outstanding under the Mortgage and the several supplemental indentures
above referred to, are as follows:
PRINCIPAL
Series AMOUNT
------ ------
5-5/8% Series due 2001...............................................................$250,000,000
8% Series due 2002.................................................................41,636,000
7-1/8% Series due 2002................................................................175,000,000
7-1/2% Series due 2002..................................................................5,280,000
6-5/8% Series due 2003................................................................250,000,000
6-1/2% Series due 2003................................................................200,000,000
6-3/8% Series due 2005.................................................................75,000,000
Pollution Control Series J due 2012.......................................................50,000,000
Pollution Control Series K due 2012.......................................................50,000,000
Pollution Control Series L due 2012.......................................................50,000,000
Pollution Control Series M due 2012........................................................4,200,000
6-5/8% Pollution Control Series I due 2022................................................29,530,000
----------
Total $...........................$1,180,646,000
=============
and
WHEREAS, the Company deems it advisable and has determined, pursuant to
Article XI of the Mortgage,
(a) to convey, pledge, transfer and assign to the Trustee and to
subject specifically to the lien of the Mortgage additional property not therein
or in any supplemental indenture specifically described but now owned by the
Company and acquired by it by purchase or otherwise; and
(b) to create a new series of bonds to be issued from time to time
under, and secured by, the Mortgage, to be designated PECO Energy Company First
and Refunding Mortgage Bonds, 5.95% Series Due 2011, (hereinafter sometimes
called the "bonds of the New Series" or the "bonds of the 5.95% Series due
2011"); and for the above-mentioned purposes to execute, deliver and record this
Supplemental Indenture; and
WHEREAS, the Company has determined by proper corporate action that the
terms, provisions and form of the bonds of the New Series shall be substantially
as follows:
9
(Form of Face of Bond)
PECO ENERGY COMPANY
REGISTERED REGISTERED
NUMBER
FIRST AND REFUNDING MORTGAGE BOND,
5.95% SERIES DUE 2011,
DUE NOVEMBER 1, 2011
PECO Energy Company, a Pennsylvania corporation (hereinafter called the
Company), for value received, hereby promises to pay to or
registered assigns,
Dollars on November 1, 2011, at the office or agency of the Company, in the City
of Philadelphia, Pennsylvania, or, at the option of the holder, at the office or
agency of the Company, in the Borough of Manhattan, The City of New York, in
such coin or currency of the United States of America as at the time of payment
shall constitute legal tender for the payment of public and private debts, and
to pay interest (computed on the basis of a 360-day year of twelve 30-day
months) thereon from the date hereof at the rate of 5.95 percent per annum in
like coin or currency, payable at either of the offices aforesaid on May 1 and
November 1 in each year until the Company's obligation with respect to the
payment of such principal shall have been discharged; provided, however, that if
(i) on or prior to the 360th day following the original issue date of the bonds
of this series, neither (x) an exchange offer (the "Exchange Offer") registered
pursuant to the Company's registration statement (the "Exchange Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
registering a security substantially identical to this bond (except that such
security will not contain terms with respect to the Special Interest payments
described below or transfer restrictions) has been consummated nor (y) if
applicable, in lieu thereof, a registration statement registering this bond for
resale (a "Resale Registration Statement") has become or declared effective; or
(ii) either the Exchange Registration Statement or, if applicable, the Resale
Registration Statement is filed and declared effective (except as specifically
permitted therein), but shall thereafter cease to be effective without being
succeeded promptly by an additional registration statement filed and declared
effective, in each case (i) and (ii) upon the terms and conditions set forth in
the Registration Rights Agreement (each such event referred to in clauses (i)
and (ii), a "Special Interest Payment Event"), then additional interest will
accrue (in addition to the interest stated above) (the "Step-Up") from the date
of such Special Interest Payment Event at a rate of 0.50% per annum, determined
daily, on the principal amount hereof, and such additional interest shall be
payable until such time (the "Step Down Date") as no Special Interest Payment
Event is in effect or the first date the bonds of this series become freely
tradable under rule 144(k) of the Securities Act. Interest accruing as a result
of the Step-Up (which shall be computed on the basis of a 365-day year and the
actual number of days elapsed) is referred to herein as "Special Interest."
Accrued Special Interest, if any, shall be paid semi-annually on May 1 and
November 1 in each year. Any accrued and unpaid interest (including Special
Interest) on this bond upon the issuance of an Exchange Security (as defined in
the Registration Rights Agreement) in
10
exchange for this bond shall cease to be payable to the holder hereof but such
accrued and unpaid interest (including Special Interest) shall be payable on the
next interest payment date for such Exchange Security to the holder thereof on
the related record date. Both such principal and interest are payable less
deduction for any taxes, assessments or governmental charges assessed against
this bond or the interest hereon or any owner or holder hereof which the
Company, the Trustee under the Mortgage referred to on the reverse hereof or any
paying agent is or may be required to collect or withhold under any present or
future law of the United States of America, or any state and/or of any county,
municipality, taxing authority or political subdivision thereof.
"Registration Rights Agreement" means an agreement by and among the
Company and the initial purchasers of the bonds of this series regarding the
Company's obligation to (1) complete the Exchange Offer and (2) register the
resale of the bonds of this series with the Securities and Exchange Commission.
The Company may fix a date, not more than fourteen calendar days prior
to any interest payment date, as a record date for determining the registered
holder of this bond entitled to such interest payment, in which case only the
registered holder on such record date shall be entitled to receive such payment,
notwithstanding any transfer of this bond upon the registration books subsequent
to such record date.
This bond shall not be valid or become obligatory for any purpose unless
it shall have been authenticated by the certificate of the Trustee under said
Mortgage endorsed hereon.
The provisions of this bond are continued on the reverse hereof and such
continued provisions shall for all purposes have the same effect as though fully
set forth at this place.
IN WITNESS WHEREOF, PECO Energy Company has caused this instrument to be
signed in its corporate name with the manual or facsimile signature of its
President or a Vice President and its corporate seal to be impressed or a
facsimile imprinted hereon, duly attested by the manual or facsimile signature
of its Secretary or an Assistant Secretary.
Dated:
PECO ENERGY COMPANY
By
--------------------------------------
President
(SEAL)
Attest:
---------------------------------
Secretary
11
(Form of Reverse of Bond)
PECO ENERGY COMPANY
First and Refunding Mortgage Bond,
5.95% Series Due 2011, Due November 1, 2011
(CONTINUED)
This bond is one of a duly authorized issue of bonds of the Company,
unlimited as to amount except as provided in the Mortgage hereinafter mentioned
or in any indenture supplemental thereto, and is one of a series of said bonds
known as First and Refunding Mortgage Bonds, 5.95% Series due 2011. This bond
and all other bonds of said issue are issued and to be issued under and pursuant
to and are all secured equally and ratably by an indenture of mortgage and deed
of trust dated May 1, 1923, duly executed and delivered by The Counties Gas and
Electric Company (to which the Company is successor) to Fidelity Trust Company,
as Trustee (to which First Union National Bank, a national banking association
organized and existing under the laws of the United States of America, is
successor Trustee), as amended, modified or supplemented by ninety-seven certain
supplemental indentures from the Company or its predecessors to said successor
Trustee or its predecessors, said mortgage, as so amended, modified or
supplemented being herein called the Mortgage. Reference is hereby made to the
Mortgage for a statement of the property mortgaged and pledged, the nature and
extent of the security, the rights of the holders of said bonds and of the
Trustee in respect of such security, the rights, duties and immunities of the
Trustee, and the terms and conditions upon which said bonds are and are to be
secured, and the circumstances under which additional bonds may be issued.
As provided in the Mortgage, the bonds secured thereby may be for
various principal sums and are issuable in series, which series may mature at
different times, may bear interest at different rates, and may otherwise vary.
The bonds of this series mature on November 1, 2011, and are issuable only in
registered form without coupons in any denomination authorized by the Company.
Any bond or bonds of this series may be exchanged for another bond or
bonds of this series in a like aggregate principal amount in authorized
denominations, upon presentation at the office of the Trustee in the City of
Philadelphia, Pennsylvania, or, at the option of the holder, at the office or
agency of the Company in the Borough of Manhattan, The City of New York, all
subject to the terms of the Mortgage but without any charge other than a sum
sufficient to reimburse the Company for any stamp tax or other governmental
charge incident to the exchange.
The bonds of this series are redeemable at the option of the Company, as
a whole or in part, at any time upon notice sent by the Company through the
mail, postage prepaid, at least thirty (30) days and not more than forty-five
(45) days prior to the date fixed for redemption, to the registered holder of
each bond to be redeemed, addressed to such holder at his address appearing upon
the registration books, at a redemption price equal to the greater of (1) 100%
of the principal amount of the bonds to be redeemed, plus accrued interest to
the redemption date, or (2) as determined by the Quotation Agent, the sum of the
present values of the remaining scheduled payments of principal and interest on
the bonds to be redeemed (not including any
12
portion of payments of interest accrued as of the redemption date) discounted to
the redemption date on a semi-annual basis (assuming a 360-day year consisting
of twelve 30-day months) at the Adjusted Treasury Rate plus 30 basis points,
plus accrued interest to the redemption date. Unless the Company defaults in
payment of the redemption price, on and after the redemption date, interest will
cease to accrue on the bonds of this series or portions of the bonds of this
series called for redemption.
"Adjusted Treasury Rate" means, with respect to any redemption date, the
rate per year equal to the semi-annual equivalent yield to maturity of the
Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue
(expressed as a percentage of its principal amount) equal to the Comparable
Treasury Price for the redemption date.
"Business Day" means any day that is not a day on which banking
institutions in New York City are authorized or required by law or regulation to
close.
"Comparable Treasury Issue" means the United States Treasury security
selected by the Quotation Agent as having a maturity comparable to the remaining
term of the bonds of this series that would be used, at the time of selection
and in accordance with customary financial practice, in pricing new issues of
corporate debt securities of comparable maturity to the remaining term of the
bonds of this series.
"Comparable Treasury Price" means, with respect to any redemption date:
- the average of the Reference Treasury Dealer Quotations for that
redemption date, after excluding the highest and lowest of the
Reference Treasury Dealer Quotations; or
- if the Trustee obtains fewer than three Reference Treasury
Dealer Quotations, the average of all Reference Treasury Dealer
Quotations so received.
"Quotation Agent" means the Reference Treasury Dealer appointed by the
Company.
"Reference Treasury Dealer" means (1) each of Merrill Lynch, Pierce,
Fenner & Smith Incorporated and First Union Securities, Inc. and their
respective successors, unless any of them ceases to be a primary U.S. Government
securities dealer in New York City (a "Primary Treasury Dealer"), in which case
the Company shall substitute another Primary Treasury Dealer; and (2) any other
Primary Treasury Dealer selected by the Company.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any redemption date, the average, as determined by
the Trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Trustee by that Reference Treasury Dealer at 5:00 p.m., New York
City time, on the third business day preceding that redemption date.
The principal of this bond may be declared or may become due on the
conditions, in the manner and with the effect provided in the Mortgage upon the
happening of an event of default as in the Mortgage provided.
13
This bond is transferable by the registered holder hereof in person or
by attorney, duly authorized in writing, at the office of the Trustee in the
City of Philadelphia, Pennsylvania, or, at the option of the holder, at the
office or agency of the Company in the Borough of Manhattan, The City of New
York, in books of the Company to be kept for that purpose, upon surrender and
cancellation hereof, and upon any such transfer, a new registered bond or bonds,
without coupons, of this series and for the same aggregate principal amount,
will be issued to the transferee in exchange herefor, all subject to the terms
of the Mortgage but without payment of any charge other than a sum sufficient to
reimburse the Company for any stamp tax or other governmental charge incident to
the transfer. The Company, the Trustee, and any paying agent may deem and treat
the person in whose name this bond is registered as the absolute owner hereof
for the purpose of receiving payment of or on account of the principal and
interest due hereon and for all other purposes, and neither the Company nor the
Trustee nor any paying agent shall be affected by any notice to the contrary.
No recourse shall be had for the payment of the principal of or interest
on this bond to any incorporator or any past, present or future stockholder,
officer or director of the Company or of any predecessor or successor
corporation, either directly or indirectly, by virtue of any statute or by
enforcement of any assessment or otherwise, and any and all liability of the
said incorporators, stockholders, officers or directors of the Company or of any
predecessor or successor corporation in respect to this bond is hereby expressly
waived and released by every holder hereof, except to the extent that such
liability may not be waived or released under the provisions of the Securities
Act of 1933 or of the rules and regulations of the Securities and Exchange
Commission thereunder.
(End of Form of Reverse of Bond)
14
and
WHEREAS, on the face of each of the bonds of the New Series, there is to
be endorsed a certificate of the Trustee in substantially the following form, to
wit:
(Form of Trustee's Certificate)
This bond is one of the bonds, of the series designated therein,
provided for in the within-mentioned Mortgage and in the Ninety-Seventh
Supplemental Indenture dated as of October 15, 2001.
FIRST UNION NATIONAL BANK
By
-------------------------------
Authorized Officer
and
WHEREAS, all acts and things necessary to make the bonds of the New
Series, when duly executed by the Company and authenticated by the Trustee as
provided in the Mortgage and indentures supplemental thereto, and issued by the
Company, the valid, binding and legal obligations of the Company, and this
Supplemental Indenture a valid and enforceable supplement to the Mortgage, have
been done, performed and fulfilled and the execution and delivery hereof have
been in all respects duly and lawfully authorized.
NOW, THEREFORE, THIS SUPPLEMENTAL INDENTURE WITNESSETH:
That in order to secure the payment of the principal of and interest on
all bonds issued and to be issued under the Mortgage and/or under any indenture
supplemental thereto, according to their tenor and effect, and according to the
terms of the Mortgage and of any indenture supplemental thereto, and to secure
the performance of the covenants and obligations in the bonds and in the
Mortgage and any indenture supplemental thereto respectively contained, and for
the proper assuring, conveying, and confirming unto the Trustee, its successors
in trust and its and their assigns forever, upon the trusts and for the purposes
expressed in the Mortgage and in any indentures supplemental thereto, all and
singular the estates, property and franchises of the Company thereby mortgaged
or intended so to be, the Company, for and in consideration of the premises and
of the sum of One Dollar ($1.00) in hand paid by the Trustee to the Company upon
the execution and delivery of this Supplemental Indenture, receipt whereof is
hereby acknowledged, and of other good and valuable consideration, has granted,
bargained, sold, conveyed, released, confirmed, pledged, assigned, transferred
and set over and by these presents does grant, bargain, sell, convey, release,
confirm, pledge, assign, transfer, and set over to First Union National Bank, as
Trustee, and to its successors in trust and its and their assigns forever, all
the following described property, real, personal and mixed of the Company, viz.:
15
The real property set forth in Schedule A, attached hereto and hereby
made a part hereof, with any improvements thereon erected now owned by the
Company but not specifically described in the Mortgage or in any indenture
supplemental thereto heretofore executed, in the places set forth in Schedule A.
Together with all gas works, electric works, plants, buildings,
structures, improvements and machinery located upon such real estate or any
portion thereof, and all rights, privileges and easements of every kind and
nature appurtenant thereto, and all and singular the tenements, hereditaments
and appurtenances belonging to the real estate or any part thereof hereinbefore
described or referred to or intended so to be, or in any way appertaining
thereto, and the reversions, remainders, rents, issues and profits thereof; also
all the estate, right, title, interest, property, possession, claim and demand
whatsoever, as well in law as in equity, of the Company, of, in and to the same
and any and every part thereof, with the appurtenances.
Also all the Company's electric transmission and distribution lines and
systems, substations, transforming stations, structures, machinery, apparatus,
appliances, devices and appurtenances.
Also all the Company's gas transmission and distribution mains, pipes,
pipe lines and systems, storage facilities, structures, machinery, apparatus,
appliances, devices and appurtenances.
Also all plants, systems, works, improvements, buildings, structures,
fixtures, appliances, engines, furnaces, boilers, machinery, retorts, tanks,
condensers, pumps, gas tanks, holders, reservoirs, expansion tanks, gas mains
and pipes, tunnels, service pipe, pipe lines, fittings, gates, valves,
connections, gas and electric meters, generators, dynamos, fans, supplies, tools
and implements, tracks, sidings, motor and other vehicles, all electric light
lines, electric power lines, transmission lines, distribution lines, conduits,
cables, stations, substations, and distributing systems, motors, conductors,
converters, switchboards, shafting, belting, wires, mains, feeders, poles,
towers, mast arms, brackets, pipes, lamps, insulators, house wiring connections
and all instruments, appliances, apparatus, fixtures, fittings and equipment and
all stores, repair parts, materials and supplies of every nature and kind
whatsoever now or hereafter owned by the Company in connection with or
appurtenant to its plants and systems for production, purchase, storage,
transmission, distribution, utilization and sale of gas and its by-products and
residual products, and/or for the generation, production, purchase, storage,
transmission, distribution, utilization and sale of electricity, or in
connection with such business.
Also all the goodwill of the business of the Company, and all rights,
claims, contracts, leases, patents, patent rights, and agreements, all accounts
receivable, accounts, claims, demands, choses in action, books of account, cash
assets, franchises, ordinances, rights, powers, easements, water rights,
riparian rights, licenses, privileges, immunities, concessions and consents now
or hereafter owned by the Company in connection with or appurtenant to its said
business.
Also all the right, title and interest of the Company in and to all
contracts for the purchase, sale or supply of gas, and its by-products and
residual products of electricity and electrical energy, now or hereafter entered
into by the Company with the right on the part of the Trustee, upon the
happening of an event of default as defined in the Mortgage as supplemented
16
by any supplemental indenture, to require a specific assignment of any and all
such contracts, whenever it shall request the Company to make the same.
Also all rents, tolls, earnings, profits, revenues, dividends and income
arising or to arise from any property now owned, leased, operated or controlled
or hereafter acquired, leased, operated or controlled by the Company and subject
to the lien of the Mortgage and indentures supplemental thereto.
Also all the estate, right, title and interest of the Company, as
lessee, in and to any and all demised premises under any and all agreements of
lease now or at any time hereafter in force, insofar as the same may now or
hereafter be assignable by the Company.
Also all other property, real, personal and mixed not hereinbefore
specified or referred to, of every kind and nature whatsoever, now owned, or
which may hereafter be owned by the Company (except shares of stock, bonds or
other securities not now or hereafter specifically pledged under the Mortgage
and indentures supplemental thereto or required to be pledged thereunder by the
provisions of the Mortgage or any indenture supplemental thereto), together with
all and singular the tenements, hereditaments and appurtenances thereunto
belonging or in any way appertaining and the reversions, remainder or
remainders, rents, issues and profits thereof; and also all the estate, right,
title, interest, property, claim and demand whatsoever as well in law as in
equity of the Company of, in and to the same and every part and parcel thereof.
It is the intention and it is hereby agreed that all property and the
earnings and income thereof acquired by the Company after the date hereof shall
be as fully embraced within the provisions hereof and subject to the lien hereby
created for securing the payment of all bonds, together with the interest
thereon, as if the property were now owned by the Company and were specifically
described herein and conveyed hereby, provided nevertheless, that no shares of
stock, bonds or other securities now or hereafter owned by the Company, shall be
subject to the lien of the Mortgage and indentures supplemental thereto unless
now or hereafter specifically pledged or required to be pledged thereunder by
the provisions of the Mortgage or any indenture supplemental thereto.
TO HAVE AND TO HOLD, all and singular the property, rights, privileges
and franchises hereby conveyed, transferred or pledged or intended so to be,
including after-acquired property, together with all and singular the
reversions, remainders, rents, revenues, income, issues and profits, privileges
and appurtenances, now or hereafter belonging or in any way appertaining
thereto, unto the Trustee and its successors in the trust hereby created, and
its and their assigns forever;
IN TRUST NEVERTHELESS, for the equal and pro rata benefit and security
of each and every person or corporation who may be or become the holders of
bonds secured by the Mortgage and indentures supplemental thereto, without
preference, priority or distinction (except as provided in Section 1 of Article
VIII of the Mortgage) as to lien or otherwise of any bond of any series over or
from any other bond, so that (except as aforesaid) each and every of the bonds
issued or to be issued, of whatsoever series, shall have the same right, lien,
privilege under the Mortgage and indentures supplemental thereto and shall be
equally secured thereby and hereby,
17
with the same effect as if the bonds had all been made, issued and negotiated
simultaneously on the date of the Mortgage.
AND THIS SUPPLEMENTAL INDENTURE FURTHER WITNESSETH:
It is hereby covenanted that all bonds secured by the Mortgage and
indentures supplemental thereto with the coupons appertaining thereto, are
issued to and accepted by each and every holder thereof, and that the property
aforesaid and all other property subject to the lien of the Mortgage and
indentures supplemental thereto is held by or hereby conveyed to the Trustee,
under and subject to the trusts, conditions and limitations set forth in the
Mortgage and indentures supplemental thereto and upon and subject to the further
trusts, conditions and limitations hereinafter set forth, as follows, to wit:
ARTICLE I.
AMENDMENTS OF MORTGAGE
Article II of the Ninth Supplemental Indenture to the Mortgage, as
heretofore amended, is hereby further amended as follows:
By deleting from paragraph (d) of Section 5 and from the first clause of
Section 9, the following:
"or Medium Term Note Series B"
and by inserting in lieu thereof, in both instances, the following:
", Medium Term Note Series B or 5.95% Series due 2011"
ARTICLE II.
BONDS OF THE NEW SERIES
Section 1. The bonds of the New Series shall be designated as
hereinabove specified for such designation in the recital immediately preceding
the form of bonds of the New Series, subject however, to the provisions of
Section 2 of Article I of the Mortgage, as amended, and are issuable only as
registered bonds without coupons, substantially in the form hereinbefore
recited; and the issue thereof shall be limited to $250,000,000 principal
amount.
The bonds of the New Series shall bear interest from the date thereof
and shall be dated as of the interest payment date to which interest was paid
next preceding the date of issue unless (a) such date of issue is an interest
payment date to which interest was paid, in which event such bonds shall be
dated as of such interest payment date, or (b) issued prior to the occurrence of
the first interest payment date on which interest has been paid, in which event
such bonds shall be dated October 30, 2001. The bonds of the New Series shall
mature on November 1, 2011.
18
The bonds of the New Series shall bear interest (computed on the basis
of a 360-day year of twelve 30-day months) at the rate provided in the form of
bond hereinbefore recited, payable on May 1 and November 1 in each year
commencing on May 1, 2002 until the Company's obligation with respect to the
payment of principal thereof shall have been discharged. Both principal and
interest on bonds of the New Series shall be payable at the office or agency of
the Company in the City of Philadelphia, Pennsylvania, or, at the option of the
holder, at the office or agency of the Company in the Borough of Manhattan, The
City of New York, and shall be payable in such coin or currency of the United
States of America as at the time of payment shall constitute legal tender for
the payment of public and private debts.
The bonds of the New Series shall be in any denomination authorized by
the Company.
Any bond or bonds of the New Series shall be exchangeable for another
bond or bonds of the New Series in a like aggregate principal amount. Any such
exchange may be made upon presentation at the office of the Trustee in the City
of Philadelphia, Pennsylvania, or, at the option of the holder, at the office or
agency of the Company in the Borough of Manhattan, The City of New York, without
any charge other than a sum sufficient to reimburse the Company for any stamp
tax or other governmental charge incident to the exchange.
Section 2. (a) Initially, the bonds of the New Series shall be
issued pursuant to a book-entry system administered by the Depository Trust
Company (or its successor, referred to herein as the "Depository") as a global
security with no physical distribution of bond certificates to be made except as
provided in this Section 2. Any provisions of the Mortgage or the bonds of the
New Series requiring physical delivery of bonds shall, with respect to any bonds
of the New Series held under the book-entry system, be deemed to be satisfied by
a notation on the bond registration books maintained by the Trustee that such
bonds are subject to the book-entry system.
(b) So long as the book-entry system is being used, one bond
of the New Series in the aggregate principal amount of the bonds of the New
Series and registered in the name of the Depository's nominee (the "Nominee")
will be issued and required to be deposited with the Depository and held in its
custody. The book-entry system will be maintained by the Depository and its
participants and indirect participants and will evidence beneficial ownership of
the bonds of the New Series, with transfers of ownership effected on the records
of the Depository, the participants and the indirect participants pursuant to
rules and procedures established by the Depository, the participants and the
indirect participants. The principal of and any premium on each bond of the New
Series shall be payable to the Nominee or any other person appearing on the
registration books as the registered holder of such bond or its registered
assigns or legal representative at the office of the office or agency of the
Company in the City of Philadelphia, Pennsylvania or the Borough of Manhattan,
The City of New York. So long as the book-entry system is in effect, the
Depository will be recognized as the holder of the bonds of the New Series for
all purposes. Transfers of principal, interest and any premium payments or
notices to participants and indirect participants will be the responsibility of
the Depository, and transfers of principal, interest and any premium payments or
notices to beneficial owners will be the responsibility of participants and
indirect participants. No other party will be responsible or liable for such
transfers of payments or notices or for maintaining, supervising or reviewing
such records maintained by the Depository, the participants or the indirect
participants. While the
19
Nominee or the Depository, as the case may be, is the registered owner of the
bonds of the New Series, notwithstanding any other provisions set forth herein,
payments of principal of, redemption premium, if any, and interest on the bonds
of the New Series shall be made to the Nominee or the Depository, as the case
may be, by wire transfer in immediately available funds to the account of such
holder. Without notice to or consent of the beneficial owners, the Trustee with
the consent of the Company and the Depository may agree in writing to make
payments of principal, redemption price and interest in a manner different from
that set forth herein. In such event, the Trustee shall make payment with
respect to the bonds of the New Series in such manner as if set forth herein.
(c) The Company may at any time elect (i) to provide for the
replacement of any Depository as the depository for the bonds of the New Series
with another qualified depository, or (ii) to discontinue the maintenance of the
bonds of the New Series under book-entry system. In such event, the Trustee
shall give 30 days prior notice of such election to the Depository (or such
fewer number of days acceptable to such Depository).
(d) Upon the discontinuance of the maintenance of the bonds
of the New Series under a book-entry system, the Company will cause the bonds to
be issued directly to the beneficial owners of the bonds of the New Series, or
their designees, as further described below. In such event, the Trustee shall
make provisions to notify participants and beneficial owners of the bonds of the
New Series, by mailing an appropriate notice to the Depository, that bonds of
the New Series will be directly issued to beneficial owners of the bonds as of a
date set forth in such notice (or such fewer number of days acceptable to such
Depository).
(e) In the event that bonds of the New Series are to be
issued to beneficial owners of the bonds, or their designees, the Company shall
promptly have bonds of the New Series prepared in certificated form registered
in the names of the beneficial owners of such bonds shown on the records of the
participants provided to the Trustee, as of the date set forth in the notice
above. Bonds issued to beneficial owners, or their designees shall be
substantially in the form set forth in this Supplemental Indenture, but will not
include the provision related to global securities.
(f) If the Depository is replaced as the depository for the
bonds of the New Series with another qualified depository, the Company will
issue a replacement global security substantially in the form set forth in this
Supplemental Indenture.
(g) The Company and the Trustee shall have no liability for
the failure of any Depository to perform its obligations to any participant, any
indirect participant or any beneficial owner of any bonds of the New Series, and
the Company and the Trustee shall not be liable for the failure of any
participant, indirect participant or other nominee of any beneficial owner or
any bonds of the New Series to perform any obligation that such participant,
indirect participant or other nominee may incur to any beneficial owner of the
bonds of the New Series.
(h) Notwithstanding any other provision of the Mortgage, on
or prior to the date of issuance of the bonds of the New Series the Trustee
shall have executed and delivered to the initial Depository a Letter of
Representations governing various matters relating to the Depository and its
activities pertaining to the bonds of the New Series. The terms and provisions
20
of such Letter of Representations are incorporated herein by reference and, in
the event there shall exist any inconsistency between the substantive provisions
of the said Letter of Representations and any provisions of the Mortgage, then,
for as long as the initial Depository shall serve as depository with respect to
the bonds of the New Series, the terms of the Letter of Representations shall
govern.
(i) The Company and the Trustee may rely conclusively upon
(i) a certificate of the Depository as to the identity of a participant in the
book-entry system; (ii) a certificate of any participant as to the identity of
any indirect participant and (iii) a certificate of any participant or any
indirect participant as to the identity of, and the respective principal amount
of bonds of the New Series owned by, beneficial owners.
Section 3. So long as the bonds of the New Series are held by The
Depository Trust Company, such bonds of the New Series shall bear the following
legend:
UNLESS THIS BOND IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY BOND ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS
WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
Section 4. The bonds of the New Series are initially being issued
in reliance on Rule 144A of the Securities Act of 1933, as amended. Accordingly,
the bonds of the New Series shall bear the following legend:
THIS BOND (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION
EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS
AMENDED (SECURITIES ACT), AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION
THEREFROM AND IN ANY EVENT MAY BE SOLD OR OTHERWISE TRANSFERRED ONLY IN
ACCORDANCE WITH THE MORTGAGE COPIES OF WHICH ARE AVAILABLE FOR INSPECTION AT THE
OFFICE OF THE TRUSTEE IN THE CITY OF PHILADELPHIA, PENNSYLVANIA.
EACH PURCHASER OF THIS BOND IS HEREBY NOTIFIED THAT THE SELLER MAY BE
RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT
PROVIDED BY RULE 144A THEREUNDER. EACH HOLDER OF THIS BOND REPRESENTS TO PECO
ENERGY COMPANY THAT (A) SUCH HOLDER WILL NOT SELL, PLEDGE OR OTHERWISE TRANSFER
THIS BOND (WITHOUT THE CONSENT OF PECO ENERGY COMPANY) OTHER THAN (1) TO A
QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION COMPLYING WITH RULE 144A UNDER
THE SECURITIES ACT, (2) IN ACCORDANCE WITH RULE 144
21
UNDER THE SECURITIES ACT, (3) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT, SUBJECT, IN THE CASE OF CLAUSES (2) OR
(3), TO THE RECEIPT BY PECO ENERGY COMPANY OF AN OPINION OF COUNSEL OR SUCH
OTHER EVIDENCE ACCEPTABLE TO PECO ENERGY COMPANY THAT SUCH RESALE, PLEDGE OR
TRANSFER IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR
(4) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND THAT (B) THE HOLDER
WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS
BOND OF THE RESALE RESTRICTIONS REFERRED TO HEREIN AND DELIVER TO THE TRANSFEREE
(OTHER THAN A QUALIFIED INSTITUTIONAL BUYER) PRIOR TO THE SALE OF A COPY OF THE
TRANSFER RESTRICTIONS APPLICABLE HERETO (COPIES OF WHICH MAY BE OBTAINED FROM
THE TRUSTEE).
Section 5. So long as any of the bonds of the New Series remain
outstanding, the Company shall keep at its office or agency in the Borough of
Manhattan, The City of New York, as well as at the office of the Trustee in the
City of Philadelphia, Pennsylvania, books for the registry and transfer of
outstanding bonds of the New Series, in accordance with the terms and provisions
of the bonds of the New Series and the provisions of Section 8 of Article I of
said Mortgage.
Section 6. So long as any bonds of the New Series remain
outstanding, the Company shall maintain an office or agency in the City of
Philadelphia, Pennsylvania, and an office or agency in the Borough of Manhattan,
The City of New York, for the payment upon proper demand of the principal of,
the interest on, or the redemption price of the outstanding bonds of the New
Series, and will from time to time give notice to the Trustee of the location of
such office or agency. In case the Company shall fail to maintain for such
purpose an office or agency in the City of Philadelphia or shall fail to give
such notice of the location thereof, then notices, presentations and demands in
respect of the bonds of the New Series may be given or made to or upon the
Trustee at its office in the City of Philadelphia and the principal of, the
interest on, and the redemption price of said bonds in such event be payable at
said office of the Trustee. All bonds of the New Series when paid shall
forthwith be cancelled.
Section 7. The Company may fix a date, not more than fourteen
calendar days prior to any interest payment date, as a record date for
determining the registered holder of each bond of the New Series entitled to
such interest payment, in which case only the registered holder of such bond on
such record date shall be entitled to receive such payment, notwithstanding any
transfer of such bond upon the registration books subsequent to such record
date.
Section 8. The bonds of the New Series shall be issued under and
subject to all of the terms and provisions of the Mortgage, of the indentures
supplemental thereto referred to in the recitals hereof and of this Supplemental
Indenture which may be applicable to such bonds or applicable to all bonds
issued under the Mortgage and indentures supplemental thereto.
22
ARTICLE III.
ISSUE AND AUTHENTICATION OF
BONDS OF THE NEW SERIES
In addition to any bonds of any series which may from time to time be
executed by the Company and authenticated and delivered by the Trustee upon
compliance with the provisions of the Mortgage and/or of any indenture
supplemental thereto, bonds of the New Series of an aggregate principal amount
not exceeding $250,000,000 shall forthwith be executed by the Company and
delivered to the Trustee, and the Trustee shall thereupon, whether or not this
Supplemental Indenture shall have been recorded, authenticate and deliver said
bonds to or upon the written order of the President, a Vice President, or the
Treasurer of the Company, under the terms and provisions of paragraph (d) of
Section 3 of Article II of the Mortgage, as amended.
ARTICLE IV.
REDEMPTION OF BONDS OF THE
NEW SERIES
Section 1. The bonds of the New Series shall be redeemable, at the
option of the Company, as a whole or in part, at any time upon notice sent by
the Company through the mail, postage prepaid, at least thirty (30) days and not
more than forty-five (45) days prior to the date fixed for redemption, to the
registered holder of each bond to be redeemed in whole or in part, addressed to
such holder at his address appearing upon the registration books, at a
redemption price equal to the greater of (1) 100% of the principal amount of the
bonds to be redeemed, plus accrued interest to the redemption date, or (2) as
determined by the Quotation Agent, the sum of the present values of the
remaining scheduled payments of principal and interest on the bonds to be
redeemed (not including any portion of payments of interest accrued as of the
redemption date) discounted to the redemption date on a semi-annual basis
(assuming a 360-day year consisting of twelve 30-day months) at the Adjusted
Treasury Rate plus 30 basis points, plus accrued interest to the redemption
date. Unless the Company defaults in payment of the redemption price, on and
after the redemption date, interest will cease to accrue on the bonds of this
series or portions of the bonds of this series called for redemption.
"Adjusted Treasury Rate" means, with respect to any redemption date, the
rate per year equal to the semi-annual equivalent yield to maturity of the
Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue
(expressed as a percentage of its principal amount) equal to the Comparable
Treasury Price for the redemption date.
"Business Day" means any day that is not a day on which banking
institutions in New York City are authorized or required by law or regulation to
close.
"Comparable Treasury Issue" means the United States Treasury security
selected by the Quotation Agent as having a maturity comparable to the remaining
term of the bonds of this series that would be used, at the time of selection
and in accordance with customary financial practice, in pricing new issues of
corporate debt securities of comparable maturity to the remaining term of the
bonds of the New Series.
23
"Comparable Treasury Price" means, with respect to any redemption date:
- the average of the Reference Treasury Dealer Quotations for that
redemption date, after excluding the highest and lowest of the
Reference Treasury Dealer Quotations; or
- if the Trustee obtains fewer than three Reference Treasury
Dealer Quotations, the average of all Reference Treasury Dealer
Quotations so received.
"Quotation Agent" means the Reference Treasury Dealer appointed by the
Company.
"Reference Treasury Dealer" means (1) each of Merrill Lynch, Pierce,
Fenner & Smith Incorporated and First Union Securities, Inc. and their
respective successors, unless any of them ceases to be a primary U.S. Government
securities dealer in New York City (a "Primary Treasury Dealer"), in which case
the Company shall substitute another Primary Treasury Dealer; and (2) any other
Primary Treasury Dealer selected by the Company.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any redemption date, the average, as determined by
the Trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the trustee by that Reference Treasury Dealer at 5:00 p.m., New York
City time, on the third business day preceding that redemption date.
Section 2. In case the Company shall desire to exercise such right
to redeem and pay off all or any part of such bonds of the New Series as
hereinbefore provided it shall comply with all the terms and provisions of
Article III of the Mortgage, as amended, applicable thereto, and such redemption
shall be made under and subject to the terms and provisions of Article III and
in the manner and with the effect therein provided, but at the time or times and
upon mailing of notice, all as hereinbefore set forth in Section 1 of this
Article. No publication of notice of any redemption of any bonds of the New
Series shall be required.
ARTICLE V.
CERTAIN EVENTS OF DEFAULT; REMEDIES
Section 1. So long as any bonds of the New Series remain
outstanding, in case one or more of the following events shall happen, such
events shall, in addition to the events of default heretofore enumerated in
paragraphs (a) throughout (d) of Section 2 of Article VIII of the Mortgage,
constitute an "event of default" under the Mortgage, as fully as if such events
were enumerated therein:
(e) default shall be made in the due and punctual payment of the
principal (including the full amount of any applicable optional
redemption price) of any bond or bonds of the New Series whether at the
maturity of said bonds, or at a date fixed for redemption of said bonds,
or any of them, or by declaration as authorized by the Mortgage;
24
Section 2. So long as any bonds of the New Series remain
outstanding, Section 10 of Article VIII of the Mortgage, as heretofore amended,
is hereby further amended by inserting in the first paragraph of such Section
10, immediately after the words "as herein provided," at the end of clause (2)
thereof, the following:
"or (3) in case default shall be made in any payment of any interest on
any bond or bonds secured by this indenture or in the payment of the principal
(including any applicable optional redemption price) of any bond or bonds
secured by this indenture, where such default is not of the character referred
to in clause (1) or (2) of this Section 10 but constitutes an event of default
within the meaning of Section 2 of this Article VIII."
ARTICLE VI.
CONCERNING THE TRUSTEE
The Trustee hereby accepts the trust herein declared and provided and
agrees to perform the same upon the terms and conditions set forth in the
Mortgage, as amended and supplemented, and upon the following terms and
conditions:
The Trustee shall not be responsible in any manner whatsoever for or in
respect of the validity of this Supplemental Indenture or the due execution
hereof by the Company or for or in respect of the recitals contained herein, all
of which recitals are made by the Company solely.
ARTICLE VII.
MISCELLANEOUS
Section 1. Unless otherwise clearly required by the context, the
term "Trustee," or any other equivalent term used in this Supplemental
Indenture, shall be held and construed to mean the trustee under the Mortgage
for the time being whether the original or a successor trustee.
Section 2. The headings of the Articles of this Supplemental
Indenture are inserted for convenience of reference only and are not to be taken
to be any part of this Supplemental Indenture or to control or affect the
meaning of the same.
Section 3. Nothing expressed or mentioned in or to be implied from
this Supplemental Indenture or in or from the bonds of the New Series is
intended, or shall be construed, to give any person or corporation, other than
the parties hereto and their respective successors, and the holders of bonds
secured by the Mortgage and the indentures supplemental thereto, any legal or
equitable right, remedy or claim under or in respect of such bonds or the
Mortgage or any indenture supplemental thereto, or any covenant, condition or
provision therein or in this Supplemental Indenture contained. All the
covenants, conditions and provisions thereof
25
and hereof are for the sole and exclusive benefit of the parties hereto and
their successors and of the holders of bonds secured by the Mortgage and
indentures supplemental thereto.
Section 4. This Supplemental Indenture may be executed in several
counterparts, each of which shall be an original and all collectively but one
instrument.
Section 5. This Supplemental Indenture is dated and shall be
effective as of October 15, 2001, but was actually executed and delivered on
October 25, 2001.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
26
IN WITNESS WHEREOF, the parties of the first and second parts hereto
have caused their corporate seals to be hereunto affixed and the President or a
Vice President of the party of the first part and the President or a Vice
President of the party of the second part, under and by the authority vested in
them, have hereto affixed their signatures and their Secretaries or Assistant
Secretaries have duly attested the execution hereof the 25th day of October,
2001.
PECO ENERGY COMPANY
By
--------------------------------
J. B. Mitchell
Vice President
[SEAL]
Attest
----------------------------
T. D. Cutler
Assistant Secretary
FIRST UNION NATIONAL BANK
By
--------------------------------
G. J. Rayzis
Vice President
[SEAL]
Attest
----------------------------
James M. Matthews
Assistant Secretary
27
COMMONWEALTH OF PENNSYLVANIA
ss.
COUNTY OF PHILADELPHIA
BE IT REMEMBERED, that on the 25th day of October, 2001, before me, a
Notary Public in and for said County and Commonwealth, residing in Philadelphia,
personally came T. D. Cutler, who being duly sworn according to law deposes and
says that he was personally present and did see the common or corporate seal of
the above named PECO Energy Company affixed to the foregoing Supplemental
Indenture, that the seal so affixed is the common or corporate seal of the said
PECO Energy Company, and was so affixed by the authority of the said corporation
as the act and deed thereof; that the above named J. B. Mitchell is a Vice
President of the said corporation, and did sign the said Supplemental Indenture
as such in the presence of this deponent that this deponent is Assistant
Secretary of the said corporation; and the name of the deponent, above signed in
attestation of the due execution of the said Supplemental Indenture, is in this
deponent's own proper handwriting.
Sworn to and subscribed before me the day and year aforesaid.
-------------------------------------------
Notarial Seal
---------------
Notary Public, City of Philadelphia,
Philadelphia County
My Commission Expires ______, ____
[SEAL]
28
COMMONWEALTH OF PENNSYLVANIA
ss.
COUNTY OF PHILADELPHIA
BE IT REMEMBERED, that on the 25th day of October, 2001, before me, the
subscriber, a Notary Public in and for said County and Commonwealth, residing in
Philadelphia, personally came James M. Matthews, who being duly sworn according
to law deposes and says that he was personally present and did see the common or
corporate seal of the above named First Union National Bank affixed to the
foregoing Supplemental Indenture, that the seal so affixed is the common or
corporate seal of the said First Union National Bank and was so affixed by the
authority of the said corporation as the act and deed thereof, that the above
named G. J. Rzyzis is a Vice President of the said corporation, and did sign the
said Supplemental Indenture as such in the presence of this deponent; that this
deponent is an Assistant Secretary of the said corporation; and that the name of
this deponent, above signed in attestation of the due execution of the said
Supplemental Indenture, is in this deponent's own proper handwriting.
Sworn to and subscribed before me the day and year aforesaid.
I hereby certify that I am not an officer of director of said First
Union National Bank.
-------------------------------------------
Notarial Seal
_____________, Notary Public
City of Philadelphia, Philadelphia County
My Commission Expires ______, ____
[SEAL]
29
CERTIFICATE OF RESIDENCE
First Union National Bank, Mortgagee and Trustee within named, hereby
certifies that its precise residence in the City of Philadelphia is N.E. Cor.
Broad and Walnut Streets in the City of Philadelphia, Pennsylvania.
FIRST UNION NATIONAL BANK
By
--------------------------------
G. J. Rayzis
Vice President
30
SCHEDULE A
COMMONWEALTH OF PENNSYLVANIA
CHESTER COUNTY
DOWNINGTOWN BOROUGH (PE 10,548)
(1) ALL THAT CERTAIN lot or piece of land with the buildings and
improvements thereon erected SITUATE in the Borough of Downingtown, County of
Chester and Commonwealth of Pennsylvania, BEGINNING at a stake in the middle of
Williams Street in the old line dividing the properties now or late of Morgan L.
Rees & Joshua and Joseph Hunt, CONTAINING 25,160 square feet.
BEING the same premises which Robert T. Murphy a/k/a Robert J. Murphy
and Patricia A. Carter Murphy by Indenture bearing date the 6th day of August
A.D. 1999 and recorded in the office for the Recording of Deeds in and for the
County of Chester in Deed Book 4617 page 103 granted and conveyed unto PECO
Energy Company, in fee.
DOWNINGTOWN BOROUGH (PE 10,554)
(2) ALL THAT CERTAIN lot or piece of land SITUATE on the North side
of Williams Street in the West Ward of the Borough of Downingtown, County of
Chester and Commonwealth of Pennsylvania, BEGINNING at a point in the middle of
Williams Street at a corner of other land now or late of Creston I. Shoemaker,
CONTAINING 3,700 square feet. Also ALL THAT CERTAIN lot or piece of land SITUATE
on the North side of Williams Street in the Borough of Downingtown, County of
Chester and Commonwealth of Pennsylvania, BEGINNING at a point in the middle of
Williams Street, at a corner of land now or late of Herbert Pritchard,
CONTAINING 8,140 square feet.
BEING the same premises which Kenneth J. Leslie and Lori A. Leslie by
Indenture bearing date the 29th day of June A.D. 2000 and recorded in the Office
for the Recording of Deeds in and for the County of Chester in Deed Book 4789
page 1007 granted and conveyed unto PECO Energy Company, in fee.
WEST BRADFORD TOWNSHIP (PE 4434)
(3) ALL THAT CERTAIN tract or parcel of land situate in the Township
of West Bradford, County of Chester, Commonwealth of Pennsylvania, BEGINNING at
a point on the title line within the bed of Downingtown Road, CONTAINING 1.708
acres.
BEING the same premises which Gloria O. Hamilton by Deed dated June 16,
1995 and recorded in the Office for Recording of Deeds &c., in and for the
County of Chester, in Deed Book 3704, page 1223 &c., granted and conveyed unto
PECO Energy Company, in fee.
1
DELAWARE COUNTY
EDDYSTONE BOROUGH (PE 9207)
(4) ALL THAT CERTAIN strip or parcel of land situate in the Borough
of Eddystone, County of Delaware, Commonwealth of Pennsylvania, BEGINNING at a
point, located on the easterly right-of-way line of Simpson Avenue, CONTAINING
1.18 Acres, more or less.
BEING the same premises which Adwin Realty Company by deed dated June
11, 1996 and recorded in the Office for the Recording of Deeds, in and for the
said County of Delaware in Deed Book No. 1498, Page 1844 &c., granted and
conveyed unto PECO Energy Company, in fee.
HAVERFORD TOWNSHIP (PE 10,555)
(5) ALL THAT CERTAIN tract or piece of land with the buildings and
improvements thereon erected SITUATE in said Township of Haverford, County of
Delaware, Commonwealth of Pennsylvania.
BEGINNING at a spike in the bed of West Chester Pike said spike being in
the middle line of a certain Twenty feet wide right of way produced, thence
extending in the bed of West Chester Pike.
BEING the same premises which Elizabeth E. Beadle, Widow of William F.
Beadle, deceased and Catherine Ferry, Marie D'Ambrosia, Joanne Taylor, William
Beadle, James Beadle, Margaret Hamill, Anne Moore, Robert Beadle and Richard
Beadle, Children of William F. Beadle, deceased; Mary Kissinger; John Beadle and
Jean M. Kissinger, by Indenture bearing date the 19th day of October A.D. 2000
and recorded in the Office for the Recording of Deeds in and for the County of
Delaware in Deed Book 2104 page 600 granted and conveyed unto PECO Energy
Company, in fee.
MONTGOMERY COUNTY
UPPER PROVIDENCE TOWNSHIP (PE 6299)
(6) ALL THAT CERTAIN tract or parcel of land situate in the Township
of Upper Providence, County of Montgomery, Commonwealth of Pennsylvania,
BEGINNING at a point on the northwesterly right-of-way line of PECO Energy
Company's existing 200 foot wide electric transmission line right-of-way also
being the line dividing lands of Joseph U. and Beatrice G. Bean and lands of
PECO Energy Company, CONTAINING 8.896 Acres.
BEING the same premises which Joseph U. Bean and Beatrice G. Bean by
Indenture bearing date November 8th, 1995 and recorded in the Office for the
Recording of Deeds in and for the County of Montgomery, conveyed unto PECO
Energy Company, in fee.
2
PHILADELPHIA AND DELAWARE COUNTIES
CITY OF PHILADELPHIA,
UPPER DARBY TOWNSHIP AND
EAST LANSDOWNE BOROUGH (PE 3988)
(7) ALL THAT CERTAIN property, together with the railroad bridges
thereon, being a portion of the line of railroad known as the Oxford Road
Branch, identified as Line Code 1181 in the Recorder's Office of Philadelphia
County, Pennsylvania in Deed Book D.C.C. No. 1962 at page 463, situate in the
City and County of Philadelphia and Commonwealth of Pennsylvania, BEGINNING at
approximately railroad Mile Post 0.0, being the westerly line of Front Street,
as indicated on sheet 1 of 4 of aforesaid Case Plan; thence extending in a
general northeasterly direction to approximately railroad Mile Post 2.18,
CONTAINING 28.95 Acres.
Also, ALL THAT CERTAIN property of the Grantor, together with the
railroad bridge thereon, being a portion of the line of railroad known as the
Penn Central Newtown Square Branch, identified as Line Code 1186 in the
Recorder's Office of Delaware County, Pennsylvania in Deed Book 2668 at page
901, situate partly in the Borough of East Landsdowne and partly in the Township
of Upper Darby, County of Delaware and Commonwealth of Pennsylvania, BEGINNING
at approximately railroad Mile Post 5.84, being the southerly line of Baltimore
Pike; thence extending in a general northerly direction to approximately
railroad Mile Post 6.7, CONTAINING 6.72 Acres.
BEING the same premises which Consolidated Rail Corporation by Indenture
bearing date the 30th day of May A.D. 1995 and recorded in the Office for the
Recording of Deeds in and for the County of Philadelphia and County of Delaware,
granted and conveyed unto PECO Energy Company, in fee.
3
EXHIBIT 4-4-1
================================================================================
SUPPLEMENTAL INDENTURE
----------
Dated as of March 1, 2002
----------
COMMONWEALTH EDISON COMPANY
to
BNY MIDWEST TRUST COMPANY
and
D. G. DONOVAN
Trustees under Mortgage Dated July 1, 1923, and Certain
Indentures Supplemental Thereto
----------
Providing for Issuance of
FIRST MORTGAGE 6.15% BONDS, SERIES 98
DUE MARCH 15, 2012
================================================================================
THIS SUPPLEMENTAL INDENTURE, dated as of March 1, 2002, between
COMMONWEALTH EDISON COMPANY, a corporation organized and existing under the laws
of the State of Illinois (hereinafter called the "Company") having an address at
10 South Dearborn Street, 37th floor, Chicago, Illinois 60603, party of the
first part, and BNY MIDWEST TRUST COMPANY, a trust company organized and
existing under the laws of the State of Illinois having an address at 2 North
LaSalle Street, Suite 1020, Chicago, Illinois 60602, and D.G. DONOVAN, an
individual having an address at 2 North LaSalle Street, Suite 1020, Chicago,
Illinois 60602, as Trustee and Co-Trustee, respectively, under the Mortgage of
the Company dated July 1, 1923, as amended and supplemented by Supplemental
Indenture dated August 1, 1944 and the subsequent supplemental indentures
hereinafter mentioned, parties of the second part (said Trustee being
hereinafter called the "Trustee", the Trustee and said Co-Trustee being
hereinafter together called the "Trustees", and said Mortgage dated July 1,
1923, as amended and supplemented by said Supplemental Indenture dated August 1,
1944 and subsequent supplemental indentures, being hereinafter called the
"Mortgage"),
W I T N E S S E T H:
WHEREAS, the Company duly executed and delivered the Mortgage to
provide for the issue of, and to secure, its bonds, issuable in series and
without limit as to principal amount except as provided in the Mortgage; and
WHEREAS, the Company from time to time has executed and delivered
supplemental indentures to the Mortgage to provide for (i) the creation of
additional series of bonds secured by the Mortgage, (ii) the amendment of
certain of the terms and provisions of the Mortgage and (iii) the confirmation
of the lien of the Mortgage upon property of the Company, such supplemental
indentures that are currently effective and the respective dates, parties
thereto and purposes thereof, being as follows:
SUPPLEMENTAL
INDENTURE DATE PARTIES PROVIDING FOR
August 1, 1944 Company to Continental Illinois National Bank Amendment and restatement of
and Trust Company of Chicago and Edmond B. Mortgage dated July 1, 1923
Stofft, as Trustee and Co-Trustee
August 1, 1946 Company to Continental Illinois National Bank Confirmation of mortgage lien
and Trust Company of Chicago and Edmond B.
Stofft, as Trustee and Co-Trustee
April 1, 1953 Company to Continental Illinois National Bank Confirmation of mortgage lien
and Trust Company of Chicago and Edmond B.
Stofft, as Trustee and Co-Trustee
March 31, 1967 Company to Continental Illinois National Bank Confirmation of mortgage lien
and Trust Company of Chicago and Edward J.
Friedrich, as Trustee and Co-Trustee
April 1, 1967 Company to Continental Illinois National Bank Amendment of Sections 3.01, 3.02,
and Trust Company of Chicago and 3.05 and 3.14 of the
-1-
SUPPLEMENTAL
INDENTURE DATE PARTIES PROVIDING FOR
Edward J. Friedrich, as Trustee and Co-Trustee Mortgage and issuance of First Mortgage
5-3/8% Bonds, Series Y
February 28, 1969 Company to Continental Illinois National Bank Confirmation of mortgage lien
and Trust Company of Chicago and Donald W.
Alfvin, as Trustee and Co-Trustee
May 29, 1970 Company to Continental Illinois National Bank Confirmation of mortgage lien
and Trust Company of Chicago and Donald W.
Alfvin, as Trustee and Co-Trustee
June 1, 1971 Company to Continental Illinois National Bank Confirmation of mortgage lien
and Trust Company of Chicago and Donald W.
Alfvin, as Trustee and Co-Trustee
April 1, 1972 Company to Continental Illinois National Bank Confirmation of mortgage lien
and Trust Company of Chicago and Donald W.
Alfvin, as Trustee and Co-Trustee
May 31, 1972 Company to Continental Illinois National Bank Confirmation of mortgage lien
and Trust Company of Chicago and Donald W.
Alfvin, as Trustee and Co-Trustee
June 15, 1973 Company to Continental Illinois National Bank Confirmation of mortgage lien
and Trust Company of Chicago and Donald W.
Alfvin, as Trustee and Co-Trustee
May 31, 1974 Company to Continental Illinois National Bank Confirmation of mortgage lien
and Trust Company of Chicago and Donald W.
Alfvin, as Trustee and Co-Trustee
June 13, 1975 Company to Continental Illinois National Bank Confirmation of mortgage lien
and Trust Company of Chicago and Donald W.
Alfvin, as Trustee and Co-Trustee
May 28, 1976 Company to Continental Illinois National Bank Confirmation of mortgage lien
and Trust Company of Chicago and Donald W.
Alfvin, as Trustee and Co-Trustee
June 3, 1977 Company to Continental Illinois National Bank Confirmation of mortgage lien
and Trust Company of Chicago and Donald W.
Alfvin, as Trustee and Co-Trustee
May 17, 1978 Company to Continental Illinois National Bank Confirmation of mortgage lien
and Trust Company of Chicago and Donald W.
Alfvin, as Trustee and Co-Trustee
August 31, 1978 Company to Continental Illinois National Bank Confirmation of mortgage lien
and Trust Company of Chicago and Donald W.
Alfvin, as Trustee and Co-Trustee
June 18, 1979 Company to Continental Illinois National Bank Confirmation of mortgage lien
and Trust Company of Chicago and Donald W.
Alfvin, as Trustee and Co-Trustee
-2-
SUPPLEMENTAL
INDENTURE DATE PARTIES PROVIDING FOR
June 20, 1980 Company to Continental Illinois National Bank Confirmation of mortgage lien
and Trust Company of Chicago and Donald W.
Alfvin, as Trustee and Co-Trustee
April 16, 1981 Company to Continental Illinois National Bank Confirmation of mortgage lien
and Trust Company of Chicago and Donald W.
Alfvin, as Trustee and Co-Trustee
April 30, 1982 Company to Continental Illinois National Bank Confirmation of mortgage lien
and Trust Company of Chicago and Donald W.
Alfvin, as Trustee and Co-Trustee
April 15, 1983 Company to Continental Illinois National Bank Confirmation of mortgage lien
and Trust Company of Chicago and Donald W.
Alfvin, as Trustee and Co-Trustee
April 13, 1984 Company to Continental Illinois National Bank Confirmation of mortgage lien
and Trust Company of Chicago and Donald W.
Alfvin, as Trustee and Co-Trustee
April 15, 1985 Company to Continental Illinois National Bank Confirmation of mortgage lien
and Trust Company of Chicago and Donald W.
Alfvin, as Trustee and Co-Trustee
April 15, 1986 Company to Continental Illinois National Bank Confirmation of mortgage lien
and Trust Company of Chicago and M.J. Kruger,
as Trustee and Co-Trustee
June 15, 1990 Company to Continental Bank, National Issuance of First Mortgage 9-7/8%
Association and M.J. Kruger, as Trustee and Bonds, Series 75
Co-Trustee
June 1, 1991 Company to Continental Bank, National Issuance of First Mortgage Bonds,
Association and M.J. Kruger, as Trustee and Pollution Control Series 1991
Co-Trustee
October 1, 1991 Company to Continental Bank, National Issuance of First Mortgage 8-1/4%
Association and M.J. Kruger, as Trustee and Bonds, Series 76 and First
Co-Trustee Mortgage 8-7/8% Bonds, Series 77
October 15, 1991 Company to Continental Bank, National Issuance of First Mortgage 8-3/8%
Association and M.J. Kruger, as Trustee and Bonds, Series 78 and First
Co-Trustee Mortgage 9-1/8% Bonds, Series 79
February 1, 1992 Company to Continental Bank, National Issuance of First Mortgage 7%
Association and M.J. Kruger, as Trustee and Bonds, Series 80 and First
Co-Trustee Mortgage 8-5/8% Bonds, Series 81
May 15, 1992 Company to Continental Bank, National Issuance of First Mortgage 6-1/8%
Association and M.J. Kruger, as Trustee and Bonds, Series 82 and First
Co-Trustee Mortgage 8% Bonds, Series 83
-3-
SUPPLEMENTAL
INDENTURE DATE PARTIES PROVIDING FOR
July 15, 1992 Company to Continental Bank, National Issuance of First Mortgage 8-1/2%
Association and M.J. Kruger, as Trustee and Bonds, Series 84
Co-Trustee
September 15, 1992 Company to Continental Bank, National Issuance of First Mortgage 7-3/8%
Association and M.J. Kruger, as Trustee and Bonds, Series 85 and First
Co-Trustee Mortgage 8-3/8% Bonds, Series 86
February 1, 1993 Company to Continental Bank, National Issuance of First Mortgage 8-3/8%
Association and M.J. Kruger, as Trustee and Bonds, Series 88
Co-Trustee
April 1, 1993 Company to Continental Bank, National Issuance of First Mortgage 6-1/2%
Association and M.J. Kruger, as Trustee and Bonds, Series 90 and First
Co-Trustee Mortgage 8% Bonds, Series 91
April 15, 1993 Company to Continental Bank, National Issuance of First Mortgage 7-5/8%
Association and M.J. Kruger, as Trustee and Bonds, Series 92
Co-Trustee
June 15, 1993 Company to Continental Bank, National Issuance of First Mortgage 7%
Association and M.J. Kruger, as Trustee and Bonds, Series 93 and First
Co-Trustee Mortgage 7-1/2% Bonds, Series 94
July 15, 1993 Company to Continental Bank, National Issuance of First Mortgage 6-5/8%
Association and M.J. Kruger, as Trustee and Bonds, Series 96 and First
Co-Trustee Mortgage 7-3/4% Bonds, Series 97
January 15, 1994 Company to Continental Bank, National Issuance of First Mortgage Bonds,
Association and M.J. Kruger, as Trustee and Pollution Control Series 1994A,
Co-Trustee 1994B and 1994C
December 1, 1994 Company to Bank of America Illinois and Issuance of First Mortgage Bonds,
Robert J. Donahue, as Trustee and Co-Trustee Pollution Control Series 1994D
June 1, 1996 Company to Harris Trust and Savings Bank and Issuance of First Mortgage Bonds,
D.G. Donovan, as Trustee and Co-Trustee Pollution Control Series 1996A and
1996B
WHEREAS, the respective designations, maturity dates and principal
amounts of the bonds of each series presently outstanding under, and secured by,
the Mortgage and the several supplemental indentures above referred to, are as
follows:
DESIGNATION MATURITY DATE PRINCIPAL AMOUNT
First Mortgage 9-7/8% Bonds, Series 75 June 15, 2020 $ 54,171,000
First Mortgage 8-1/4% Bonds, Series 76 October 1, 2006 100,000,000
-4-
DESIGNATION MATURITY DATE PRINCIPAL AMOUNT
First Mortgage 8-3/8% Bonds, Series 78 October 15, 2006 125,000,000
First Mortgage 8-5/8% Bonds, Series 81 February 1, 2022 200,000,000
First Mortgage 8% Bonds, Series 83 May 15, 2008 140,000,000
First Mortgage 8-1/2% Bonds, Series 84 July 15, 2022 200,000,000
First Mortgage 7-3/8% Bonds, Series 85 September 15, 2002 200,000,000
First Mortgage 8-3/8% Bonds, Series 86 September 15, 2022 200,000,000
First Mortgage 8-3/8% Bonds, Series 88 February 15, 2023 235,950,000
First Mortgage 8% Bonds, Series 91 April 15, 2023 160,000,000
First Mortgage 7-5/8% Bonds, Series 92 April 15, 2013 220,000,000
First Mortgage 7% Bonds, Series 93 July 1, 2005 225,000,000
First Mortgage 7-1/2% Bonds, Series 94 July 1, 2013 150,000,000
First Mortgage 6-5/8% Bonds, Series 96 July 15, 2003 100,000,000
First Mortgage 7-3/4% Bonds, Series 97 July 15, 2023 150,000,000
First Mortgage 5.3% Bonds, Pollution June 1, 2011 100,000,000
Control Series 1991
First Mortgage 5.3% Bonds, Pollution January 15, 2004 26,000,000
Control Series 1994A
First Mortgage 5.7% Bonds, Pollution January 15, 2009 20,000,000
Control Series 1994B
First Mortgage 5.85% Bonds, Pollution January 15, 2014 20,000,000
Control Series 1994C
First Mortgage 5.3% Bonds, Pollution March 1, 2015 91,000,000
Control Series 1994D
First Mortgage 4.4% Bonds, Pollution December 1, 2006 110,000,000
Control Series 1996A
First Mortgage 4.4% Bonds, Pollution Control Series December 1, 2006 89,400,000
Control Series 1996B
-------------------------
Total $2,916,521,000
=========================
WHEREAS, the Mortgage provides for the issuance from time to time
thereunder, in series, of bonds of the Company for the purposes and subject to
the limitations therein specified; and
WHEREAS, the Company desires, by this Supplemental Indenture, to create
an additional series of bonds to be issuable under the Mortgage, such bonds to
be designated "First Mortgage
-5-
6.15% Bonds, Series 98" (hereinafter called the "bonds of Series 98") and the
terms and provisions to be contained in the bonds of Series 98 or to be
otherwise applicable thereto to be as set forth in this Supplemental Indenture;
and
WHEREAS, the bonds of Series 98 and the Trustee's certificate to be
endorsed thereon shall be substantially in the form of the General Form of
Registered Bond Without Coupons and the form of the General Form of Trustee's
Certificate set forth in Section 3.05 of the Supplemental Indenture dated August
1, 1944 to the Mortgage with such appropriate insertions, omissions and
variations in order to express the designation, date, maturity date, annual
interest rate, record dates for, and dates of, payment of interest,
denominations, terms of redemption and redemption prices, and other terms and
characteristics authorized or permitted by the Mortgage or not inconsistent
therewith; and
WHEREAS, the Company is legally empowered and has been duly authorized
by the necessary corporate action and by order of the Illinois Commerce
Commission to make, execute and deliver this Supplemental Indenture, and to
create, as an additional series of bonds of the Company, the bonds of Series 98,
and all acts and things whatsoever necessary to make this Supplemental
Indenture, when executed and delivered by the Company and the Trustees, a valid,
binding and legal instrument, and to make the bonds of Series 98, when
authenticated by the Trustee and issued as in the Mortgage and in this
Supplemental Indenture provided, the valid, binding and legal obligations of the
Company, entitled in all respects to the security of the Mortgage, as amended
and supplemented, have been done and performed;
NOW, THEREFORE, in consideration of the premises and of the sum of one
dollar duly paid by the Trustees to the Company, and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties hereto
do hereby agree as follows:
SECTION 1. DESIGNATION AND ISSUANCE OF BONDS OF SERIES 98. The bonds of
Series 98 shall, as hereinbefore recited, be designated as the Company's "First
Mortgage 6.15% Bonds, Series 98." Subject to the provisions of the Mortgage, the
bonds of Series 98 shall be issuable without limitation as to the aggregate
principal amount thereof.
SECTION 2. FORM, DATE, MATURITY DATE, INTEREST RATE AND INTEREST
PAYMENT DATES OF BONDS OF SERIES 98. (a) The definitive bonds of Series 98 shall
be in engraved, lithographed, printed or typewritten form and shall be
registered bonds without coupons; and such bonds and the Trustee's certificate
to be endorsed thereon shall be substantially in the forms hereinbefore recited,
respectively. The bonds of Series 98 shall be dated as provided in Section 3.01
of the Mortgage, as amended by Supplemental Indenture dated April 1, 1967.
(b) The bonds of Series 98 shall mature on March 15, 2012.
(c) The bonds of Series 98 shall bear interest at the rate of 6.15% per
annum until the principal thereof shall be paid; provided, however, that if
-6-
(i) on or prior to the 270th day following the original issue
date of the bonds of Series 98, neither (x) an exchange offer (the
"Exchange Offer") registered pursuant to the Company's registration
statement (the "Exchange Registration Statement") under the Securities
Act of 1933, as amended (the "Securities Act"), registering a security
substantially identical to the bonds of Series 98 (except that such
security will not contain terms with respect to the Special Interest
payments described below or the transfer restrictions described in
Section 9(b) below) has been consummated nor (y) if applicable, in lieu
thereof, a registration statement registering the bonds of Series 98
for resale (a "Resale Registration Statement") has become or been
declared effective; or
(ii) either the Exchange Registration Statement or, if
applicable, the Resale Registration Statement is filed and declared
effective, but shall thereafter cease to be effective or usable in
accordance with and during the periods specified in the Registration
Rights Agreement without being succeeded promptly by an additional
registration statement filed and declared effective (subject to
particular exceptions set forth in the Registration Rights Agreement),
in each case (i) and (ii) upon the terms and conditions set forth in the
Registration Rights Agreement (each such event referred to in clauses (i) and
(ii), a "Special Interest Payment Event"), then additional interest will accrue
(in addition to the interest stated above) (the "Step-Up") from the date of such
Special Interest Payment Event at a rate of 0.50% per annum, determined daily,
on the outstanding principal amount of the bonds of Series 98, and such
additional interest shall be payable until such time (the "Step Down Date") as
no Special Interest Payment Event is in effect or the first date the bonds of
Series 98 become freely tradable under Rule 144(k) of the Securities Act.
Interest accruing as a result of the Step-Up (which shall be computed on the
basis of a 365-day year and the actual number of days elapsed) is referred to
herein as "Special Interest." Any accrued and unpaid interest (including Special
Interest) on the bonds of Series 98 upon the issuance of New Securities (as
defined in the Registration Rights Agreement) in exchange for the bonds of
Series 98 subject to the provisions of this Section 2(c) shall cease to be
payable to the holders thereof but such accrued and unpaid interest (including
Special Interest) shall be payable on the next interest payment date for such
New Securities to the holders thereof on the related record date.
"Registration Rights Agreement" means the Registration Rights
Agreement by and among the Company and the initial purchasers of the
bonds of Series 98 regarding the Company's obligation to (1) complete
the Exchange Offer and (2) register the resale of the bonds of Series
98 with the United States Securities and Exchange Commission.
(d) Interest on the bonds of Series 98 shall be payable semi-annually
on the fifteenth day of March and the fifteenth day of September in each year,
commencing September 15, 2002. March 1 and September 1 in each year are hereby
established as record dates for the payment of interest payable on the next
succeeding interest payment dates, respectively. The interest on each bond of
Series 98 so payable on any interest payment date shall, subject to the
exceptions provided in Section 3.01 of the Mortgage, as amended by said
Supplemental Indenture dated
-7-
April 1, 1967, be paid to the person in whose name such bond is registered at
the close of business on the March 1 or September 1, as the case may be, next
preceding such interest payment date.
SECTION 3. EXECUTION OF BONDS OF SERIES 98. The bonds of Series 98
shall be executed on behalf of the Company by its President or one of its Vice
Presidents, manually or by facsimile signature, and shall have its corporate
seal affixed thereto or a facsimile of such seal imprinted thereon, attested by
its Secretary or one of its Assistant Secretaries, manually or by facsimile
signature, all as may be provided by resolution of the Board of Directors of the
Company. In case any officer or officers whose signature or signatures, manual
or facsimile, shall appear upon any bond of Series 98 shall cease to be such
officer or officers before such bond shall have been actually authenticated and
delivered, such bond nevertheless may be issued, authenticated and delivered
with the same force and effect as though the person or persons whose signature
or signatures, manual or facsimile, appear thereon had not ceased to be such
officer or officers of the Company.
SECTION 4. MEDIUM AND PLACES OF PAYMENT OF PRINCIPAL OF AND INTEREST ON
BONDS OF SERIES 98; TRANSFERABILITY AND EXCHANGEABILITY. Both the principal of
and interest on the bonds of Series 98 shall be payable in any coin or currency
of the United States of America which at the time of payment is legal tender for
the payment of public and private debts, and both such principal and interest
shall be payable at the office or agency of the Company in the City of Chicago,
State of Illinois, or, at the option of the registered owner, at the office or
agency of the Company in the Borough of Manhattan, The City of New York, State
of New York, and such bonds shall be transferable and exchangeable, in the
manner provided in Sections 3.09 and 3.10 of the Mortgage, at said office or
agency. No charge shall be made by the Company to the registered owner of any
bond of Series 98 for the transfer of such bond or for the exchange thereof for
bonds of other authorized denominations, except, in the case of transfer, a
charge sufficient to reimburse the Company for any stamp or other tax or
governmental charge required to be paid by the Company or the Trustee.
SECTION 5. DENOMINATIONS AND NUMBERING OF BONDS OF SERIES 98. The bonds
of Series 98 shall be issued in the denomination of $1,000 and in such multiples
of $1,000 as shall from time to time hereafter be determined and authorized by
the Board of Directors of the Company or by any officer or officers of the
Company authorized to make such determination, the authorization of the
denomination of any bond of Series 98 to be conclusively evidenced by the
execution thereof on behalf of the Company. Bonds of Series 98 shall be numbered
R-1 and consecutively upwards.
SECTION 6. TEMPORARY BONDS OF SERIES 98. Until definitive bonds of
Series 98 are ready for delivery, there may be authenticated and issued in lieu
of any thereof and subject to all of the provisions, limitations and conditions
set forth in Section 3.11 of the Mortgage, temporary registered bonds without
coupons of Series 98.
-8-
SECTION 7. REDEMPTION OF BONDS OF SERIES 98. (a) The bonds of Series 98
shall be redeemable, at the option of the Company, as a whole or in part, at any
time upon notice sent by the Company through the mail, postage prepaid, at least
thirty (30) days and not more than forty-five (45) days prior to the date fixed
for redemption, to the registered holder of each bond to be redeemed in whole or
in part, addressed to such holder at his address appearing upon the registration
books, at a redemption price equal to the greater of
(1) 100% of the principal amount of the bonds of Series 98 to
be redeemed, plus accrued interest to the redemption date, or
(2) as determined by the Quotation Agent (as hereinafter
defined), the sum of the present values of the remaining scheduled
payments of principal and interest on the bonds of Series 98 to be
redeemed (not including any portion of payments of interest accrued as
of the redemption date) discounted to the redemption date on a
semi-annual basis (assuming a 360-day year consisting of twelve 30-day
months) at the Adjusted Treasury Rate (as hereinafter defined) plus
twenty-five (25) basis points, plus accrued interest to the redemption
date.
Unless the Company defaults in payment of the redemption price, on and after the
redemption date, interest will cease to accrue on the bonds of Series 98 or
portions of the bonds of Series 98 called for redemption.
For purposes of the foregoing, the following terms shall have the
respective meanings set forth below:
"Adjusted Treasury Rate" means, with respect to any redemption
date, the rate per year equal to the semi-annual equivalent yield to
maturity of the Comparable Treasury Issue, assuming a price for the
Comparable Treasury Issue (expressed as a percentage of its principal
amount) equal to the Comparable Treasury Price for the redemption date.
"Business Day" means any day that is not a day on which
banking institutions in New York City are authorized or required by law
or regulation to close.
"Comparable Treasury Issue" means the United States Treasury
security selected by the Quotation Agent as having a maturity
comparable to the remaining term of the bonds of Series 98 that would
be used, at the time of selection and in accordance with customary
financial practice, in pricing new issues of corporate debt securities
of comparable maturity to the remaining term of the bonds of Series 98.
"Comparable Treasury Price" means, with respect to any
redemption date:
(i) the average of the Reference Treasury Dealer
Quotations for that redemption date, after excluding the
highest and lowest of the Reference Treasury Dealer
Quotations; or
-9-
(ii) if the Trustee obtains fewer than three
Reference Treasury Dealer Quotations, the average of all
Reference Treasury Dealer Quotations so received.
"Quotation Agent" means the Reference Treasury Dealer
appointed by the Company.
"Reference Treasury Dealer" means (1) each of J.P. Morgan
Securities Inc. and Salomon Smith Barney Inc. and their respective
successors, unless any of them ceases to be a primary U.S. Government
securities dealer in New York City (a "Primary Treasury Dealer"), in
which case the Company shall substitute another Primary Treasury
Dealer; and (2) any other Primary Treasury Dealer selected by the
Company.
"Reference Treasury Dealer Quotations" means, with respect to
each Reference Treasury Dealer and any redemption date, the average, as
determined by the Trustee, of the bid and asked prices for the
Comparable Treasury Issue (expressed in each case as a percentage of
its principal amount) quoted in writing to the Trustee by that
Reference Treasury Dealer at 5:00 p.m., New York City time, on the
third Business Day preceding that redemption date.
(b) In case the Company shall desire to exercise such right to redeem
and pay off all or any part of such bonds of Series 98 as hereinbefore provided,
it shall comply with all the terms and provisions of Article V of the Mortgage
applicable thereto, and such redemption shall be made under and subject to the
terms and provisions of Article V and in the manner and with the effect therein
provided, but at the time or times and upon mailing of notice, all as
hereinbefore set forth in this Section 7. No publication of notice of any
redemption of any bonds of Series 98 shall be required under Section 5.03(a) of
the Mortgage.
SECTION 8. BOOK-ENTRY ONLY SYSTEM. It is intended that the bonds of
Series 98 be registered so as to participate in the securities depository system
(the "DTC System") with The Depository Trust Company ("DTC"), as set forth
herein. The bonds of Series 98 shall be initially issued in the form of a fully
registered bond or bonds in the name of Cede & Co., or any successor thereto, as
nominee for DTC. The Company and the Trustees are authorized to execute and
deliver such letters to or agreements with DTC as shall be necessary to
effectuate the DTC System, including the Letter of Representations from the
Company and the Trustees to DTC relating to the bonds of Series 98 (the
"Representation Letter"). In the event of any conflict between the terms of the
Representation Letter and the Mortgage, the terms of the Mortgage shall control.
DTC may exercise the rights of a bondholder only in accordance with the terms
hereof applicable to the exercise of such rights.
With respect to bonds of Series 98 registered in the name of DTC or its
nominee, the Company and the Trustees shall have no responsibility or obligation
to any broker-dealer, bank or other financial institution for which DTC holds
such bonds from time to time as securities depository (each such broker-dealer,
bank or other financial institution being referred to herein as a "Depository
Participant") or to any person on behalf of whom such a Depository Participant
-10-
holds an interest in such bonds (each such person being herein referred to as an
"Indirect Participant"). Without limiting the immediately preceding sentence,
the Company and the Trustees shall have no responsibility or obligation with
respect to:
(i) the accuracy of the records of DTC, its nominee or any
Depository Participant with respect to any ownership interest in the
bonds of Series 98,
(ii) the delivery to any Depository Participant or any
Indirect Participant or any other person, other than a registered owner
of a bond of Series 98, of any notice with respect to the bonds of
Series 98, including any notice of redemption,
(iii) the payment to any Depository Participant or Indirect
Participant or any other person, other than a registered owner of a
bond of Series 98, of any amount with respect to principal of,
redemption premium, if any, on, or interest on, the bonds of Series 98,
or
(iv) any consent given by DTC as registered owner.
So long as certificates for the bonds of Series 98 are not issued as hereinafter
provided, the Company and the Trustees may treat DTC or any successor securities
depository as, and deem DTC or any successor securities depository to be, the
absolute owner of such bonds for all purposes whatsoever, including, without
limitation, (1) the payment of principal and interest on such bonds, (2) giving
notice of matters (including redemption) with respect to such bonds and (3)
registering transfers with respect to such bonds. While a bond of Series 98 is
in the DTC System, no person other than DTC or its nominee shall receive a
certificate with respect to such bond.
In the event that:
(a) DTC notifies the Company that it is unwilling or unable to
continue as depositary or if DTC ceases to be a clearing agency
registered under applicable law and a successor depositary is not
appointed by the Company within 90 days,
(b) the Company determines that the beneficial owners of the
bonds of Series 98 should be able to obtain certificated bonds and so
notifies the Trustees in writing or
(c) there shall have occurred and be continuing a completed
default or any event which after notice or lapse of time or both would
be a completed default with respect to the bonds of Series 98,
the bonds of Series 98 shall no longer be restricted to being registered in the
name of DTC or its nominee. In the case of clause (a) of the preceding sentence,
the Company may determine that the bonds of Series 98 shall be registered in the
name of and deposited with a successor depository operating a securities
depository system, as may be acceptable to the Company and the Trustees, or such
depository's agent or designee, and if the Company does not appoint a
-11-
successor securities depository system within 90 days, then the bonds may be
registered in whatever name or names registered owners of bonds transferring or
exchanging such bonds shall designate, in accordance with the provisions hereof.
Notwithstanding any other provision of the Mortgage to the contrary, so
long as any bond of Series 98 is registered in the name of DTC or its nominee,
all payments with respect to principal of and interest on such bond and all
notices with respect to such bond shall be made and given, respectively, in the
manner provided in the Representation Letter.
SECTION 9. LEGENDS. (a) So long as the bonds of Series 98 are held by
the Depository Trust Company, such bonds of Series 98 shall bear the following
legend:
Unless this bond is presented by an authorized representative
of the Depository Trust Company, a New York corporation ("DTC"), to the
Company or its agent for registration of transfer, exchange or payment,
and any bond issued is registered in the name of Cede & Co. or in such
other name as is requested by an authorized representative of DTC (and
any payment is made to Cede & Co. or to such other entity as is
requested by an authorized representative of DTC), any transfer, pledge
or other use hereof for value or otherwise by a person is wrongful
inasmuch as the registered owner hereof, Cede & Co., has an interest
herein.
(b) The bonds of Series 98 are initially being issued without
registration under the Securities Act in reliance on Rule 144A under the
Securities Act. Accordingly, until such time as the bonds of Series 98 are
registered under the Securities Act, or are exchanged for securities
substantially identical to the bonds of Series 98 (except that such securities
will not contain terms with respect to the Special Interest payments described
in Section 2(c) above or the transfer restrictions described herein) that are so
registered, the bonds of Series 98 shall bear the following legend:
This bond (or its predecessor) was originally issued in a
transaction exempt from registration under the United States Securities
Act of 1933, as amended ("Securities Act"), and may not be offered,
sold, pledged or otherwise transferred in the absence of such
registration or an applicable exemption therefrom and in any event may
be sold or otherwise transferred only in accordance with the Mortgage,
copies of which are available for inspection at the office of the
Mortgage Trustee in the City of Chicago, Illinois.
Each purchaser of this bond is hereby notified that the seller
may be relying on the exemption from the provisions of section 5 of the
Securities Act provided by Rule 144A thereunder. Each holder of this
bond represents to Commonwealth Edison Company that (a) such holder
will not sell, pledge or otherwise transfer this bond (without the
consent of Commonwealth Edison Company) other than (1) to a qualified
institutional buyer in a transaction complying with Rule 144A under the
Securities Act, (2) in accordance with Rule 144 under the Securities
Act, (3) outside the United States in a transaction meeting the
requirements of Regulation S under the Securities Act, (4) pursuant to
another
-12-
available exemption from registration under the Securities Act,
subject, in the case of clauses (2), (3) or (4), to the receipt by
Commonwealth Edison Company of an opinion of counsel or such other
evidence acceptable to Commonwealth Edison Company that such resale,
pledge or transfer is exempt from the registration requirements of the
Securities Act or (5) pursuant to an effective registration statement
and that (b) the holder will, and each subsequent holder is required
to, notify any purchaser of this bond of the resale restrictions
referred to herein and deliver to the transferee (other than a
qualified institutional buyer) prior to the sale a copy of the transfer
restrictions applicable hereto (copies of which may be obtained from
the Mortgage Trustee).
SECTION 10. CONFIRMATION OF LIEN. The Company, for the equal and
proportionate benefit and security of the holders of all bonds at any time
issued under the Mortgage, hereby confirms the lien of the Mortgage upon, and
hereby grants, bargains, sells, transfers, assigns, pledges, mortgages, warrants
and conveys unto the Trustees, all property of the Company and all property
hereafter acquired by the Company, other than (in each case) property which, by
virtue of any of the provisions of the Mortgage, is excluded from such lien, and
hereby confirms the title of the Trustees (as set forth in the Mortgage) in and
to all such property. Without in any way limiting or restricting the generality
of the foregoing, there is specifically included within the confirmation of lien
and title hereinabove expressed the property of the Company legally described on
Exhibit A attached hereto and made a part hereof.
SECTION 11. MISCELLANEOUS. The terms and conditions of this
Supplemental Indenture shall be deemed to be a part of the terms and conditions
of the Mortgage for any and all purposes. The Mortgage, as supplemented by said
indentures supplemental thereto dated subsequent to August 1, 1944 and referred
to in the recitals of this Supplemental Indenture, and as further supplemented
by this Supplemental Indenture, is in all respects hereby ratified and
confirmed.
This Supplemental Indenture shall bind and, subject to the provisions
of Article XIV of the Mortgage, inure to the benefit of the respective
successors and assigns of the parties hereto.
Although this Supplemental Indenture is dated as of March 1, 2002, it
shall be effective only from and after the actual time of its execution and
delivery by the Company and the Trustees on the date indicated by their
respective acknowledgments hereto annexed.
This Supplemental Indenture may be simultaneously executed in any
number of counterparts, and all such counterparts executed and delivered, each
as an original, shall constitute but one and the same instrument.
-13-
IN WITNESS WHEREOF, Commonwealth Edison Company has caused
this Supplemental Indenture to be executed in its name by its Vice President and
Treasurer, and its seal to be hereunto affixed and attested by one of its
Assistant Secretaries, and BNY Midwest Trust Company, as Trustee under the
Mortgage, has caused this Supplemental Indenture to be executed in its name by
one of its Vice Presidents, and its seal to be hereunto affixed and attested by
one of its Assistant Secretaries, and D. G. Donovan, as Co-Trustee under the
Mortgage, has hereunto affixed his signature, all as of the day and year first
above written.
COMMONWEALTH EDISON COMPANY
By
J. Barry Mitchell
Vice President and Treasurer
(SEAL)
ATTEST:
Scott N. Peters
Assistant Secretary
BNY MIDWEST TRUST COMPANY
By
J. Bartolini
Vice President
(SEAL)
ATTEST:
C. Potter
Assistant Secretary
D. G. DONOVAN
-14-
STATE OF ILLINOIS )
) SS.
COUNTY OF COOK )
I, MARY L. KWILOS, a Notary Public in and for said County, in the State
aforesaid, DO HEREBY CERTIFY that J. BARRY MITCHELL, Vice President and
Treasurer of Commonwealth Edison Company, an Illinois corporation, one of the
parties described in and which executed the foregoing instrument, and SCOTT N.
PETERS, an Assistant Secretary of said corporation, who are both personally
known to me to be the same persons whose names are subscribed to the foregoing
instrument as such Vice President and Treasurer and Assistant Secretary,
respectively, and who are both personally known to me to be Vice President and
Treasurer and an Assistant Secretary, respectively, of said corporation,
appeared before me this day in person and severally acknowledged that they
signed, sealed, executed and delivered said instrument as their free and
voluntary act as such Vice President and Treasurer and Assistant Secretary,
respectively, of said corporation, and as the free and voluntary act of said
corporation, for the uses and purposes therein set forth.
GIVEN under my hand and notarial seal this 6th day of March, A.D. 2002.
Mary L. Kwilos
Notary Public
(NOTARIAL SEAL)
My Commission expires October 26, 2005.
-15-
STATE OF ILLINOIS )
) SS.
COUNTY OF COOK )
I, LINDA ELLEN GARCIA, a Notary Public in and for said County, in the
State aforesaid, DO HEREBY CERTIFY that J. BARTOLINI, a Vice President of BNY
Midwest Trust Company, an Illinois trust company, one of the parties described
in and which executed the foregoing instrument, and C. POTTER, an Assistant
Secretary of said trust company, who are both personally known to me to be the
same persons whose names are subscribed to the foregoing instrument as such Vice
President and Assistant Secretary, respectively, and who are both personally
known to me to be a Vice President and an Assistant Secretary, respectively, of
said trust company, appeared before me this day in person and severally
acknowledged that they signed, sealed, executed and delivered said instrument as
their free and voluntary act as such Vice President and Assistant Secretary,
respectively, of said trust company, and as the free and voluntary act of said
trust company, for the uses and purposes therein set forth.
GIVEN under my hand and notarial seal this 6th day of March, A.D. 2002.
Linda Ellen Garcia
Notary Public
(NOTARIAL SEAL)
My Commission expires September 23, 2002.
-16-
STATE OF ILLINOIS )
) SS.
COUNTY OF COOK )
I, LINDA ELLEN GARCIA, a Notary Public in and for said County, in the
State aforesaid, DO HEREBY CERTIFY that D. G. DONOVAN, one of the parties
described in and which executed the foregoing instrument, who is personally
known to me to be the same person whose name is subscribed to the foregoing
instrument, appeared before me this day in person and acknowledged that he
signed, executed and delivered said instrument as his free and voluntary act for
the uses and purposes therein set forth.
GIVEN under my hand and notarial seal this 6th day of March, A.D. 2002.
Linda Ellen Garcia
Notary Public
(NOTARIAL SEAL)
My Commission expires September 23, 2002.
-17-
EXHIBIT A
LEGAL DESCRIPTIONS
[omitted]
-18-
Exhibit 4-4-2
================================================================================
INSTRUMENT
OF
RESIGNATION, APPOINTMENT AND ACCEPTANCE
--------------------
DATED AS OF FEBRUARY 20, 2002
---------------------
EXECUTED BY
HARRIS TRUST AND SAVINGS BANK
COMMONWEALTH EDISON COMPANY
AND
BNY MIDWEST TRUST COMPANY
UNDER THE PROVISIONS OF THE
MORTGAGE OF COMMONWEALTH EDISON COMPANY,
DATED JULY 1, 1923, AND INDENTURES
SUPPLEMENTAL THERETO
REFLECTING
THE RESIGNATION OF HARRIS TRUST AND SAVINGS BANK AS TRUSTEE
AND THE APPOINTMENT OF BNY MIDWEST TRUST COMPANY
AS SUCCESSOR TRUSTEE
================================================================================
THIS INSTRUMENT OF RESIGNATION, APPOINTMENT AND ACCEPTANCE (this
"Instrument"), dated as of the 20th day of February, 2002, among HARRIS TRUST
AND SAVINGS BANK, a state banking corporation organized and existing under the
laws of the State of Illinois (the "Resigning Trustee") having an address at 111
West Monroe Street, Chicago, Illinois 60603, COMMONWEALTH EDISON COMPANY, a
corporation organized and existing under the laws of the State of Illinois (the
"Company") having an address at 10 South Dearborn Street, 37th floor, Chicago,
Illinois 60603, and BNY MIDWEST TRUST COMPANY, a trust company organized and
existing under the laws of the State of Illinois (the "Successor Trustee")
having an address at 2 North LaSalle Street, Suite 1020, Chicago, Illinois
60602.
W I T N E S S E T H:
WHEREAS, the Resigning Trustee has previously indicated its intent to
resign as trustee under the Mortgage dated July 1, 1923, as amended and
supplemented by Supplemental Indenture dated August 1, 1944 and by subsequent
supplemental indentures (the "Mortgage"); and the Company has caused notice
thereof to be published as required by the provision of Section 15.06 of the
Mortgage and to be given to the holders of bonds outstanding under the Mortgage
as required by the provisions of Section 15.10(c) of the Mortgage; and
WHEREAS, pursuant to an order of its Board of Directors, the Company has
determined to appoint the Successor Trustee to serve as successor trustee to the
Resigning Trustee under the provisions of the Mortgage; and
WHEREAS, by this Instrument, the Resigning Trustee desires to confirm its
resignation as trustee, the Company desires to confirm its appointment of the
Successor Trustee as trustee, and the Successor Trustee desires to confirm its
acceptance of its appointment as trustee under the provision of the Mortgage;
NOW, THEREFORE, in consideration of the foregoing, the parties hereby agree
and confirm as follows:
1. The Resigning Trustee hereby confirms its resignation as Trustee (as
such term is used in the Mortgage) under the Mortgage. Such resignation shall be
effective as provided in Section 4 of this Instrument.
2. The Company hereby confirms its appointment of the Successor Trustee to
serve as Trustee under the Mortgage as successor to the Resigning Trustee. Such
appointment shall be effective as provided in Section 4 of this Instrument.
3. The Successor Trustee hereby confirms its acceptance of its appointment
as Trustee under the Mortgage and its acceptance of the estates, authority,
rights, trusts, powers, duties and obligations of the Resigning Trustee, as
Trustee, under the Mortgage. Such acceptance shall be effective as provided in
Section 4 of this Instrument.
4. The resignation referred to in Section 1, the appointment referred to in
Section 2 and the acceptance referred to in Section 3 shall be effective as of
the opening of business in Chicago, Illinois on the date hereof.
2
5. The Company, for the equal and proportionate benefit and security of the
holders of all bonds at any time issued under the Mortgage, hereby confirms the
lien of the Mortgage upon, and hereby grants, bargains, sells, transfers,
assigns, pledges, mortgages, warrants and conveys unto the Trustees, all
property of the Company and all property hereafter acquired by the Company,
other than (in each case) property which, by virtue of any of the provisions of
the Mortgage, is excluded from such lien, and hereby confirms the title of the
Trustees (as set forth in the Mortgage) in and to all such property. Without in
any way limiting or restricting the generality of the foregoing, there is
specifically included within the confirmation of lien and title hereinabove
expressed the property of the Company legally described on Exhibit A attached
hereto and made a part hereof.
3
IN WITNESS WHEREOF, each of said parties has caused this Instrument to be
executed in its name by as duly authorized representative, and its corporate
seal to be hereunto affixed and attested by a duly authorized representative, as
of the 20th day of February, 2002.
HARRIS TRUST AND SAVINGS BANK
By:
J. Bartolini
(CORPORATE SEAL) Vice President
ATTEST:
C. Potter
Assistant Secretary
COMMONWEALTH EDISON COMPANY
By:
J. Barry Mitchell
Vice President and
Treasurer
(CORPORATE SEAL)
ATTEST:
Scott N. Peters
Assistant Secretary
BNY MIDWEST TRUST COMPANY
By:
J. Bartolini
(CORPORATE SEAL) Vice President
ATTEST:
C. Potter
Assistant Secretary
4
STATE OF ILLINOIS )
) SS.
COUNTY OF COOK )
I, LINDA ELLEN GARCIA,
