UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
October 10, 2002
(Date of earliest
event reported)
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) 394-7398
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
Item 5. Other Events
On October 11, 2002 Exelon issued a note to its financial community, which is
included as exhibit 99.1. Additionally, Commonwealth Edison Company issued a
press release on October 10, 2002 attached as exhibit 99.2.
Exhibit Index
Exhibit No. Description
- ----------- -----------
99.1 Exelon's note to its financial community regarding a
report by Liberty Consulting
99.2 ComEd's press release regarding a report by Liberty Consulting
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
EXELON CORPORATION
COMMONWEALTH EDISON COMPANY
/S/ Ruth Ann M. Gillis
-----------------------------
Ruth Ann M. Gillis
Senior Vice President
Exelon Corporation
October 10, 2002
Exhibit 99.1
[EXELON LOGO]
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Exelon Corporation www.exeloncorp.com
P.O. Box 805379
Chicago, IL 60680-5379
October 11, 2002
Note to Exelon's Financial Community:
Commonwealth Edison Receives Audit Report
On October 10, 2002, Commonwealth Edison Company (ComEd) announced that it had
received the report on the audit by Liberty Consulting Group (Liberty) related
to the pending Delivery Services Rate Case. ComEd is Exelon Corporation's
regulated Illinois energy delivery company. This audit was initiated in the
course of ComEd's delivery services rate case filed on June 1, 2001. In this
case, ComEd seeks to establish rates to be charged customers taking only
delivery services from the utility.
Background
Under Illinois law, ComEd was required to offer delivery services to its
non-residential customers on a phased-in basis, beginning in October 1999. In
order to accomplish this, ComEd filed its first delivery services rate case in
early 1999, and the Illinois Commerce Commission (ICC) approved ComEd's first
non-residential delivery services rates in August 1999. However, Illinois law
also required ComEd to offer delivery services to residential customers
beginning in May 2002. To accomplish this, ComEd filed a second delivery
services rate case in June 2001. That case seeks to establish ComEd's first
residential delivery services rates as well as to update the previously approved
non-residential rates.
On April 1, 2002, the ICC issued an interim order in that case. The order set
delivery services rates for residential customers choosing a new supplier,
beginning May 1, 2002. Traditional bundled rates - rates paid by residential
customers that retain ComEd as their electricity supplier - are not affected by
this order and will remain frozen through 2006. The rates for non-residential
customers taking delivery services were not affected by the interim order. The
potential revenue impact of the interim order is not material in 2002.
The interim order is based on an adjusted 2000 test year and approved a $1.527
billion per year jurisdictional delivery services revenue requirement and a
$3.580 billion jurisdictional delivery services rate base. In addition, the
interim order approved an 8.99% weighted average cost of capital with an 11.72%
return on equity, incorporating an agreement that ComEd reached with major
parties in the case. Consistent with that agreement with ComEd and other parties
to the case, the ICC deemed that it would conduct an audit of portions of
ComEd's expenditures, including capital plant expenditures.
Audit Results
The ICC chose Liberty to conduct the audit. The purpose of the audit was to
further analyze and establish the reasonableness of certain past investments and
expenditures as reflected in the 2000 test year. Specifically, the audit
primarily focused on investments made to upgrade the distribution system to
improve service and reliability in the wake of the widely publicized outages
that occurred in 1999.
The audit report recognizes ComEd's "extraordinary accomplishment" in inspecting
and upgrading the delivery system. However, the audit also concludes that some
of the expenditures were needed to "catch-up" with past under-investment and
deferred maintenance activities and recommends that some of these expenditures
not be included for cost recovery.
Using the interim order as a starting point, Liberty recommends additional
disallowances:
o Net rate base reduction of $106 million from $3.58 billion to $3.47
billion.
o Reducing operating expenses, including depreciation, by $141 million, from
$1.138 billion to $997 million.
o Reducing delivery services revenue requirement by approximately $153
million, from $1.527 billion to $1.374 billion.
Liberty found all the distribution plant to be used and useful and did not
recommend any "used and useful" disallowances.
Potential Impact
With the audit report completed, the rate case moves on to the next phase during
which ComEd and other parties will have an opportunity to respond to the audit
report. The ICC will then hold hearings on the Liberty audit report and the
responses. A final decision should come sometime in the middle of 2003. This
decision may revise the existing delivery services rates for customers choosing
a supplier other than ComEd. Traditional bundled rates - rates paid by
residential customers that retain ComEd as their electricity supplier - are not
affected by this order and will remain frozen through 2006. The potential
revenue impact of the order is not expected to be material, because the
reduction in the delivery services revenue requirement is likely to be largely
offset by increases in the competitive transition charges paid by customers who
choose a new supplier. It should be noted that currently there are no
residential customers taking only delivery service from ComEd, as there is
virtually no retail energy supply competition for this customer segment.
Although ComEd intends to contest the Liberty audit findings in the reopened
hearings, if the ICC ultimately determines at the conclusion of the hearings
that all or some portion of its distribution plant investment is not recoverable
through rates, ComEd may be required to write off some or all of the amount of
its investment that the ICC determines is not recoverable in this case. Although
ComEd cannot currently estimate what portion, if any, of the Liberty audit
recommendations the ICC will accept, the estimated potential write-off could be
up to approximately $100 million (pre-tax) if the Liberty audit recommendations
were to be accepted by the ICC in their entirety. ComEd expects to record a
charge of $12 million (pre-tax), or $0.02 per share, in the third quarter of
2002, representing the estimated minimum probable write-off exposure resulting
from the audit findings.
If you have questions regarding this matter please contact me at (312) 394-7696
or Marybeth Flater at (312) 394-8354.
Sincerely,
Linda C. Byus, CFA
Vice President Investor Relations
================================================================================
This note contains certain forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements are based on
management's current expectations and are subject to uncertainty and changes in
circumstances. Actual results may vary materially from the expectations
contained herein. The forward-looking statements herein include statements about
future financial and operating results of Exelon. Economic, business,
competitive and/or regulatory factors affecting Exelon's businesses generally
could cause actual results to differ materially from those described herein. For
a discussion of the factors that could cause actual results to differ
materially, please see "Risk Factors" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" in Exelon Generation Company's
Registration Statement on Form S-4, Reg. No. 333-85496 and Exelon's and Exelon
Generation Company's filings with the Securities and Exchange Commission,
particularly those discussed in "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Outlook" in Exelon's 2001 Annual
Report. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date of this note. Exelon
does not undertake any obligation to publicly release any revisions to these
forward-looking statements to reflect events or circumstances after the date of
this note.
Exhibit 99.2
[ComEd Logo]
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News Release An Exelon Company
From: Commonwealth Edison FOR IMMEDIATE RELEASE
Media Relations ---------------------
P.O. Box 805379 Thursday, October 10, 2002
Chicago, IL 60680-5379
Contact: Tabrina Davis
312.394.3500
Consultant Report Revisits ComEd's 1999 Problems and 2000 Improvement Work
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ComEd Says Results Show Money to Improve Reliability Was Well Spent
and That Customers Are Paying Lower Rates Now than in 1999
CHICAGO - Commonwealth Edison officials said today that a report by Liberty
Consulting revisits well-publicized reports about the company's past reliability
and management problems, but said the company has already admitted its mistakes
and moved on with substantial improvements. Customers are experiencing 47
percent fewer outages than in 1998, and when outages do occur ComEd is restoring
power more quickly. The length of outages has decreased by 64 percent.
"Everyone knows ComEd had problems a few years back. The important thing is that
we admitted our mistakes and got to work improving our system," said ComEd
President Frank Clark. "ComEd today is a vastly different company than the one
described in this report. Reliability is better and rates are lower than they
were in 1999."
The Illinois Commerce Commission (ICC) sponsored this most recent review of
ComEd's past as part of the process to establish ComEd's "delivery service
charges." ComEd agreed to this review. The delivery service charges under review
apply only to customers who choose to purchase their electricity from an
alternative supplier or under ComEd's Power Purchase Option. These customers pay
a regulated charge that allows ComEd to maintain the network of substations and
wires that deliver power to homes and businesses.
ComEd's proposed delivery service charges average 1.93 cents per kilowatt/hour,
which is approximately 20 percent less than the average rate charged by other
utilities that have recently set delivery services rates. None of ComEd's 3.2
million residential customers currently pay the delivery service charge.
Year 2000 Was One of "Extraordinary Accomplishment" at ComEd
As is customary, the Liberty report recommends a reduction of ComEd's proposed
delivery service charges. However, the report acknowledges that ComEd kept its
promise to improve service in the wake of the 1999 outages. "The year 2000 was
one of extraordinary accomplishment at ComEd," the report observes. It goes on
to say:
"Spurred by public and regulatory concern, by the vision of new executives
brought in to lead its delivery of service, and by obligations that arose
from litigation by the City of Chicago, ComEd has since 1999 been
undertaking:
o A thorough, accelerated inspection of its existing system
o The correction of once-neglected maintenance and repairs discovered
through these inspections
o The addition of major new facilities that corrected what had become
over time a structural flaw in the design of the network that
distributes electricity in the City of Chicago and the rest of the
Company's service area."
(more)
ComEd
Page 2 of 2
Liberty's central claim is that in ComEd's admittedly successful efforts to
improve service rapidly, some work ended up costing more than it could have.
ComEd officials acknowledged that while hindsight is always 20/20, the proof of
the company's work is in the results. "This was money well spent. We kept our
promise and fixed our reliability problems quickly," said Clark.
ComEd Residential Customer Pay Less for Better Reliability
While ComEd's reliability was improving, the rates paid by its residential
customers were going down. Residential customers are paying electric rates today
that are 5 percent lower than they were in 1999, thanks to an October 2001 rate
cut mandated by the Illinois General Assembly. This 5 percent rate cut is in
addition to a 15 percent rate cut that took effect in August 1998; both cuts
were part of the 1997 Illinois restructuring law. In all, ComEd's residential
customers are paying lower rates today than they were in 1990 - and these lower
rates are frozen until 2007. The rate freeze applies to all ComEd customers and
means they have the protection of a low rate that cannot go up, and the freedom
to shop for a better deal from another supplier.
Report Is One Step in Process
On June 1, 2001, ComEd filed with the ICC to establish delivery service charges
for residential customers in preparation for residential customer choice, which
began in May 2002. The filing also updated delivery service charges for
non-residential customers. The ICC approved initial residential delivery service
charges on April 1, 2002, pending results of the audit and further proceedings;
non-residential charges will be revised in the litigation following the audit.
Now that Liberty has filed its report, the process moves on to the next phase
later this year, when the ICC will hold hearings on the Liberty report and
ComEd's response. A final decision should come sometime in the middle of 2003.
- 2 -
Commonwealth Edison is a unit of Chicago-based Exelon Corporation (NYSE: EXC),
one of the nation's largest electric utilities with more than $15 billion in
revenues and a customer base of five million. ComEd provides service to more
than 3.4 million customers across Northern Illinois, or nearly 70 percent of the
state's population.