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
PECO ENERGY COMPANY
EXELON GENERATION COMPANY, LLC
/S/ Robert S. Shapard
Robert S. Shapard
Executive Vice President and Chief Financial Officer
Exelon Corporation
April 30, 2003
Exhibit 99.1
[EXELON LOGO]
- --------------------------------------------------------------------------------
News Release
From: Exelon Corporation FOR IMMEDIATE RELEASE
Corporate Communications April 28, 2003
P.O. Box 805379 Chicago, IL 60680-5379
Contact: Linda Marsicano, Media Relations
312.394.3099
Linda Byus, CFA, Investor Relations
312.394.7696
Exelon Announces Strong First Quarter Earnings;
Reaffirms 2003 Earnings Guidance
Chicago (April 28, 2003) - Exelon Corporation (NYSE: EXC) today announced
operating earnings for the first quarter of 2003 of $397 million, or $1.22 per
share (diluted), compared with operating earnings of $250 million, or $0.77 per
share (diluted), for the same period in 2002. The 58% improvement year-over-year
was due primarily to higher weather-related gas and kWh sales, increased CTC
revenue at ComEd, lower depreciation and amortization expense, fewer nuclear
outages and lower interest expense, which more than offset increased operating
expenses including pension and benefit costs.
Reported first quarter 2003 consolidated earnings prepared in accordance with
accounting principles generally accepted in the United States (GAAP) were $361
million, or $1.11 per share (diluted). Reported results for the first quarter
include the $112 million, or $0.34 per share, after-tax gain for the cumulative
effect of adopting SFAS 143, "Accounting for Asset Retirement Obligations."
Reported earnings also include a $17 million, or $0.05 per share, after-tax
charge related to the March 3 ComEd Settlement Agreement discussed below and an
after-tax charge for the impairment of Exelon's investment in Sithe Energies,
Inc. of $130 million, or $0.40 per share. Reported earnings in the first quarter
of 2002 were $8 million, or $0.02 per share (diluted), which included a $230
million, or $0.71 per share, after-tax charge for the cumulative effect of
adopting SFAS 142, an accounting standard for goodwill and intangible assets,
and net pre-tax charges of $10 million, or $0.04 per share, for severance costs.
(Details on the differences between GAAP earnings and operating earnings are
included below, with a tabular reconciliation of these differences included in
the attachments to this release.)
"Our first quarter results provide a solid base to build on in 2003," said John
W. Rowe, Exelon Chairman and CEO. "Through The Exelon Way, we will continue to
improve efficiency and productivity and create even more value for our
investors. We believe The Exelon Way will enable us to meet or exceed 5% annual
earnings growth and provide cash that will increase balance sheet flexibility to
successfully handle the end of the regulatory transition in Illinois in 2007."
2003 Earnings Guidance
Exelon's full year operating earnings are expected to fall within a range of
$4.80 to $5.00 per share. The earnings guidance is based on the assumption of
normal weather for the last three quarters of 2003 and excludes the first
quarter $0.34 per share cumulative effect for the change in accounting
principle, the net $0.05 per share charge related to the March 3 ComEd
settlement agreement and the $0.40 per share impairment of our Sithe Energies
investment. Second quarter operating earnings are expected to represent between
21% and 23% of full year operating earnings.
Adoption of SFAS 143
Exelon adopted SFAS 143 as of January 1, 2003. SFAS 143 provides accounting
requirements for retirement obligations associated with tangible long-lived
assets. The new standard changed the accounting for decommissioning of nuclear
generating plants as well as certain other long-lived assets. Adoption of the
new standard resulted in $112 million of after-tax income reported as a
cumulative effect of a change in accounting principle in the first quarter of
2003. The new standard is not expected to have an impact on ongoing earnings.
Operating Earnings
Operating earnings (pro forma), which generally exclude non-operational items as
well as one-time charges or credits that are not normally associated with our
ongoing operations, are provided as a complement to results provided in
accordance with GAAP. Management uses such pro forma measures internally to
evaluate the company's performance and manage its operations. A reconciliation
of GAAP to operating earnings is included in the attachments to this release.
Operating earnings (pro forma) exclude:
o Cumulative effect of changes in accounting principles
o One-time gains (losses) associated with a regulatory order
o Severance charges or other costs associated with restructuring operations
that are material in magnitude
o Transaction-related gains or losses related to the sale or purchase of an
asset or business, which is not a part of ongoing operations.
First Quarter Highlights
o Nuclear Operations Exelon Generation's nuclear fleet, excluding
AmerGen, produced 29,330 GWhs for the first quarter of 2003, compared
with 27,533 (reflects reallocation) GWhs output for the first quarter
of 2002. The fleet, including AmerGen, achieved a capacity factor of
94.4% for the first quarter of 2003, compared with 90.3% for the first
quarter of 2002. Exelon Generation's nuclear group completed two
planned refueling outages during the first quarter of 2003 compared
with four in the first quarter of 2002. Operating expenses associated
with the planned refueling outages were approximately $32 million lower
in the first quarter of 2003 compared with the prior year.
o ComEd Refinancing Year-to-date, ComEd has completed $1.3 billion of
securities offerings as part of its ongoing refinancing program. On
January 22, 2003, ComEd closed on the sale of $350 million of 3.70%
First Mortgage Bonds, which are due in 2008, and $350 million of 5.875%
First Mortgage Bonds, which are due in 2033. The net proceeds from the
sale of the bonds were used to pay off matured or called debt with
2
interest rates averaging about 6.5%. On March 17, 2003, ComEd closed on
the sale of $200 million of 30-year Trust Preferred Securities. The
securities carry a coupon of 6.35% and will mature in 2033. The purpose
of the issue was to refund an existing ComEd trust preferred issue with
an 8.48% coupon. On April 7, 2003, ComEd closed on the sale of $395
million of First Mortgage Bonds maturing in 2015 with a coupon of
4.70%. The purpose of the issue was to refund debt with an average
interest rate of about 8.2%.
o PECO Energy Refinancing On April 28, 2003, PECO Energy closed on the
sale of $450 million of First Mortgage Bonds. The securities carry a
3.5% coupon and will mature in 2008. Proceeds will be used to fund
maturing debt with an average interest rate of about 6.5%.
o March 3 Settlement Agreement On March 28, 2003, the Illinois Commerce
Commission (ICC) entered final orders for the three docketed cases
included in the March 3 Agreement entered into by ComEd and other
interested parties. The Agreement resolved several regulatory matters,
and provided greater certainty for the balance of ComEd's competitive
transition period through 2006 and setting the stage for the
post-transition period. The three ICC orders established delivery
service rates for retail customers not under the traditional bundled
rates, rejected disallowances proposed by the ICC's auditors and found
ComEd's distribution plant additions to be prudent and used and useful,
established market value energy adders for customers who select an
alternative electricity supplier or the purchase power option and
approved an hourly energy price rate that will be available to certain
delivery service customers. Other provisions of the Agreement not
subject to ICC action include the funding of certain programs for
customer and governmental groups and facilitating the potential
extension of ComEd's full-requirements power purchase agreement with
its generating affiliate through 2006. In the first quarter, ComEd
recorded a $51 million (on a present value basis before income taxes)
charge related to the funding of certain programs for customer and
governmental groups, partially offset by the reversal of a $12 million
(before income taxes) third quarter 2002 potential capital disallowance
reserve and a $10 million (before income taxes) credit also related to
the ICC regulatory order. The net one-time charge for these items is
$17 million (after income taxes).
o Exelon New England Exelon New England's Mystic 8 generating plant began
commercial operation on April 13, 2003. Mystic 8 is an 807-MW gas-fired
combined cycle plant with an estimated 7,000 heat rate located in
Everett, MA (greater Boston area). The Mystic 9 plant is expected to
begin commercial operation in May and ForeRiver in June 2003.
BUSINESS UNIT RESULTS
Exelon Corporation's consolidated net income for the first quarter of 2003 was
$361 million compared with net income of $8 million in the first quarter of
2002. Operating earnings were $397 million in the first quarter of 2003 compared
with operating earnings of $250 million in the first quarter of 2002.
Exelon Energy Delivery consists of the retail electricity transmission and
distribution operations of ComEd and PECO and the natural gas distribution
business of PECO. Energy Delivery's net income in the first quarter of 2003 was
3
$330 million compared with net income of $215 million in the first quarter of
2002. First quarter 2003 net income includes the net $17 million after-tax
charge resulting from the March 3 ComEd Settlement Agreement and income of $5
million for the cumulative effect of adopting SFAS 143. The increase in net
income was primarily due to increased CTC recoveries at ComEd, increased sales
to residential and small commercial and industrial customers, including
weather-related electric and gas sales, lower interest costs and lower
depreciation rates at ComEd.
Heating degree-days for the first quarter of 2003 in the ComEd service territory
were up 17% relative to the same period in 2002 and 3% above normal. In the PECO
service territory, heating degree-days were up 33% compared with 2002 and 8%
above normal. Retail kWh deliveries rose 5.8% for ComEd, with a 7.4% increase in
deliveries to the residential customer class reflecting more heating degree-days
and a follow on to 2002's strong housing market. PECO's retail kWh deliveries
increased 11.5% overall, with residential deliveries up 18.7%. PECO's gas
deliveries increased 26.4% for the quarter and gas revenue increased 38.2% to
$288 million. Energy Delivery's first quarter 2003 revenues were $2,642 million,
up 13% from $2,335 million in 2002. Energy Delivery's first quarter 2003 fuel
and purchased power expense was $1,175 million, up 15% from $1,024 million in
2002. The impact of the colder weather increased Energy Delivery's first quarter
2003 earnings per share by approximately $0.14 relative to 2002, and $0.04
relative to the normal weather that was incorporated in our earnings guidance.
Exelon Generation consists of Exelon's electric generation operations and power
marketing and trading functions. First quarter 2003 reported net income before
cumulative effect of a change in accounting principle (SFAS 143) was a loss of
$52 million and includes the $130 million after-tax impairment of the investment
in Sithe Energies. Net income after the cumulative effect of the change in
accounting principle was $56 million. First quarter 2002 net income and income
before cumulative effect of a change in accounting principle were $79 million
and $66 million, respectively. Income before cumulative effect in 2003 excluding
the $130 million Sithe impact exceeded 2002 by $12 million despite the $31
million (before tax) unrealized mark-to-market loss from non-trading activities
driven by higher power market prices relative to gas and oil market prices.
While the underlying instruments do not qualify for hedge accounting treatment,
they are part of the overall hedge strategy and, as such, we expect the loss to
be essentially offset by resulting physical asset transactions in 2003 and later
years. A $6 million (before tax) mark-to-market gain was recorded in the first
quarter of 2002.
Generation's first quarter 2003 revenue was $1,863 million, compared with first
quarter 2002 revenue of $1,461 million. The revenue increase reflects higher
energy market sales volumes, higher power prices and the 2002 acquisitions of
the New England plants and two Texas plants. Energy sales volumes, exclusive of
trading volumes, totaled 54,409 GWhs in the first quarter of 2003 compared with
48,324 GWhs in first quarter 2002.
Operating and maintenance expenses were up for the quarter as $19 million of
additional expenses resulting from the acquisitions of the New England and Texas
plants, higher pension and post-retirement benefit expense and the effects of
certain new accounting treatments under FAS 143, were partially offset by lower
expenses from fewer planned nuclear outages.
Power Team's revenue net fuel increased by $62 million in first quarter 2003
over first quarter 2002 excluding the mark-to-market impact in both years. The
improvement includes $32 million of margin contribution from the New England and
Texas plants acquired after the first quarter of 2002. The increase was driven
4
by higher wholesale power prices in all regions in which Power Team operates, a
higher average power price to ComEd and higher nuclear generation, offset
partially by higher supply costs, including fuel and purchased power. The
average realized price excluding trading activity in the first quarter of 2003
was $34 per MWh compared with $30 per MWh in 2002. Higher market prices in both
MAIN and PJM, driven by higher market gas and oil prices and cold weather, were
partially offset by our hedged position during the quarter. The same factors,
cold weather and higher gas prices, also resulted in higher supply costs,
including purchased power and fuel costs.
Exelon Enterprises consists of Exelon's competitive retail energy sales, energy
and infrastructure services, venture capital investments and related businesses.
Enterprises' first quarter 2003 net loss and loss before cumulative effect of a
change in accounting principle were $18 million and $17 million, respectively.
The first quarter 2002 net loss and loss before cumulative effect of a change in
accounting principle were $271 million and $28 million, respectively. The
decrease in the first quarter 2003 loss before cumulative effect of a change in
accounting principle of $11 million is primarily the result of a reduction in
operating expenses, reduced costs from the discontinuance of retail sales in the
PJM region and a reduction in equity losses of unconsolidated affiliates.
Despite the continued weak economy, improvements were achieved in most
businesses. However, unplanned losses resulting from Exelon Energy exiting a key
supply agreement in the Northeast ($10.8 million) coupled with a write-down of a
venture capital investment ($3.0 million) contributed to the loss for the
quarter.
Conference call information: Exelon has scheduled a conference call for 9 AM ET
(8 AM CT) on April 29, 2003. The call-in number in the U.S. is 877/715-5317 and
the international call-in number is 973/582-2720. No password is required. Media
representatives are invited to participate on a listen-only basis. The call will
be web-cast and archived on Exelon's web site: www.exeloncorp.com. (Please
select the Investor Relations page.)
Telephone replays will be available until May 16. The U.S. call-in number for
replays is 877/519-4471 and the international call-in number is 973/341-3080.
The confirmation code is 3851095.
================================================================================
Except for the historical information contained herein, certain of the matters
discussed in this news release are forward-looking statements, within the
meaning of the Private Securities Litigation Reform Act of 1995, that are
subject to risks and uncertainties. The factors that could cause actual results
to differ materially from the forward-looking statements made by a registrant
include those discussed herein as well as those discussed in Exelon
Corporation's 2002 Annual Report on Form10-K in (a) ITEM 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Business Outlook and the Challenges in Managing Our Business for
Exelon, ComEd, PECO and Generation and (b) ITEM 8. Financial Statements and
Supplementary Data: Exelon--Note 19, ComEd--Note 16, PECO--Note 18 and
Generation--Note 13, and (c) other factors discussed in filings with the
Securities and Exchange Commission (SEC) by Exelon Corporation, Commonwealth
Edison Company, PECO Energy Company and Exelon Generation Company, LLC
(Registrants). Readers are cautioned not to place undue reliance on these
forward-looking statements, which apply only as of the date of this press
release. None of the Registrants undertakes any obligation to publicly release
any revision to its forward-looking statements to reflect events or
circumstances after the date of this press release.
5
###
Exelon Corporation is one of the nation's largest electric utilities with
approximately 5 million customers and $15 billion in annual revenues. The
company has one of the industry's largest portfolios of electricity
generation capacity, with a nationwide reach and strong positions in the
Midwest and Mid-Atlantic. Exelon distributes electricity to approximately
5 million customers in Illinois and Pennsylvania and gas to more than 440,000
customers in the Philadelphia area. Exelon is headquartered in Chicago and
trades on the NYSE under the ticker EXC.
6
EXELON CORPORATION
Consolidated Statements of Income
(unaudited)
(in millions, except per share data)
Three Months Ended March 31, 2003
--------------------------------------------------------------------------
Pro Forma
GAAP (a) Adjustments Pro Forma
----------------- ----------------------- -----------------------
Operating Revenues $ 4,074 $ - $ 4,074
Operating Expenses
Purchased Power 907 - 907
Fuel 830 - 830
Operating and Maintenance 1,093 (41) (b) 1,052
Depreciation and Amortization 290 - 290
Taxes Other Than Income 197 - 197
----------------- ----------------------- -----------------------
Total Operating Expenses 3,317 (41) 3,276
----------------- ----------------------- -----------------------
Operating Income 757 41 798
Other Income and Deductions
Interest Expense (225) - (225)
Distributions on Preferred Securities
of Subsidiaries (12) - (12)
Equity in Earnings of Unconsolidated
Affiliates, net 18 - 18
Impairment of Investment in Sithe Energies, Inc. (200) 200 (c) -
Other, Net 59 (12) (b) 47
----------------- ----------------------- -----------------------
Total Other Income and Deductions (360) 188 (172)
----------------- ----------------------- -----------------------
Income Before Income Taxes and Cumulative
Effect of Changes in Accounting Principles 397 229 626
Income Taxes 148 81 229
----------------- ----------------------- -----------------------
Income Before Cumulative Effect of Changes
in Accounting Principles 249 148 397
Cumulative Effect of Changes in Accounting
Principles, Net of Income Taxes 112 (112) (d) -
----------------- ----------------------- -----------------------
Net Income $ 361 $ 36 $ 397
================= ======================= =======================
Earnings per Average Common Share
Basic:
Income before Cumulative Effect of
Changes in Accounting Principles $ 0.76 $ 0.46 $ 1.22
Cumulative Effect of Changes in
in Accounting Principles 0.35 (0.35) -
----------------- ----------------------- -----------------------
Net Income $ 1.11 $ 0.11 $ 1.22
================= ======================= =======================
Diluted:
Income before Cumulative Effect of
Changes in Accounting Principles $ 0.77 $ 0.45 $ 1.22
Cumulative Effect of Changes
in Accounting Principles 0.34 (0.34) -
----------------- ----------------------- -----------------------
Net Income $ 1.11 $ 0.11 $ 1.22
================= ======================= =======================
Average Common Shares Outstanding
Basic 324
Diluted 326
Effect of Pro Forma Adjustments on Net Income
Recorded in Accordance with GAAP:
Impairment of Sithe Energies, Inc. investment $ (0.40)
Cumulative effect of adopting SFAS 143 0.34
March 3 ComEd Settlement Agreement (0.05)
Employee severance costs -
Cumulative effect of adopting
SFAS 141 and SFAS 142 -
-----------------
Total Pro Forma Adjustments $ (0.11)
=================
Three Months Ended March 31, 2002
--------------------------------------------------------------------------
Pro Forma
GAAP (a) Adjustments Pro Forma
----------------- ----------------------- ------------------------
Operating Revenues $ 3,357 $ - $ 3,357
Operating Expenses
Purchased Power 668 - 668
Fuel 496 - 496
Operating and Maintenance 1,067 (10) (e) 1,057
Depreciation and Amortization 335 - 335
Taxes Other Than Income 186 - 186
----------------- ----------------------- ------------------------
Total Operating Expenses 2,752 (10) 2,742
----------------- ----------------------- ------------------------
Operating Income 605 10 615
Other Income and Deductions
Interest Expense (249) - (249)
Distributions on Preferred Securities
of Subsidiaries (11) - (11)
Equity in Earnings of Unconsolidated
Affiliates, net 13 - 13
Impairment of Investment in Sithe Energies, Inc. - - -
Other, Net 28 - 28
----------------- ----------------------- ------------------------
Total Other Income and Deductions (219) - (219)
----------------- ----------------------- ------------------------
Income Before Income Taxes and Cumulative
Effect of Changes in Accounting Principles 386 10 396
Income Taxes 148 (2) 146
----------------- ----------------------- ------------------------
Income Before Cumulative Effect of Changes
in Accounting Principles 238 12 250
Cumulative Effect of Changes in Accounting
Principles, Net of Income Taxes (230) 230 (f) -
----------------- ----------------------- ------------------------
Net Income $ 8 $ 242 $ 250
================= ======================= ========================
Earnings per Average Common Share
Basic:
Income before Cumulative Effect of
Changes in Accounting Principles $ 0.74 $ 0.04 $ 0.78
Cumulative Effect of Changes in
in Accounting Principles (0.72) 0.72 -
----------------- ----------------------- ------------------------
Net Income $ 0.02 $ 0.76 $ 0.78
================= ======================= ========================
Diluted:
Income before Cumulative Effect of
Changes in Accounting Principles $ 0.73 $ 0.04 $ 0.77
Cumulative Effect of Changes
in Accounting Principles (0.71) 0.71 -
----------------- ----------------------- ------------------------
Net Income $ 0.02 $ 0.75 $ 0.77
================= ======================= ========================
Average Common Shares Outstanding
Basic 321
Diluted 323
Effect of Pro Forma Adjustments on Net Income
Recorded in Accordance with GAAP:
Impairment of Sithe Energies, Inc. investment $ -
Cumulative effect of adopting SFAS 143 -
March 3 ComEd Settlement Agreement -
Employee severance costs (0.04)
Cumulative effect of adopting
SFAS 141 and SFAS 142 (0.71)
-----------------
Total Pro Forma Adjustments $ (0.75)
=================
(a) Results reported in accordance with accounting principles generally accepted in the United States (GAAP).
(b) Pro forma adjustment for the March 3 ComEd Settlement Agreement.
(c) Pro forma adjustment for the impairment of Exelon's investment in Sithe Energies, Inc.
(d) Pro forma adjustment for the cumulative effect of adopting SFAS No. 143.
(e) Pro forma adjustment for severance costs of $10 million pre-tax primarily related to executive severance. Not all of the
severance expense is tax deductible.
(f) Pro forma adjustment for the cumulative effect of adopting SFAS No. 141 and SFAS No. 142 related to the impairment of
Enterprises' goodwill and the benefit of AmerGen's negative goodwill.
7
EXELON CORPORATION
Earnings Per Diluted Share Reconciliation
First Quarter 2003 vs. First Quarter 2002
2002 Earnings per Diluted Share $ 0.02
2002 Pro Forma Adjustments:
Cumulative Effect of Adopting SFAS 141 and SFAS 142 0.71
Employee Severance Costs (1) 0.04
-------------
2002 Pro Forma Earnings 0.77
Year Over Year Effects on Earnings:
Higher Energy Margins - Weather Impact (2) 0.15
Higher Energy Margins - Rate Changes (3) 0.15
Higher Energy Margins - Other 0.02
Higher Operating and Maintenance Expense (O&M) (4) (0.12)
Lower Nuclear Outage Operating and Maintenance Costs (5) 0.06
Lower Depreciation and Amortization Expense (6) 0.08
Lower Interest Expense (7) 0.04
Higher Investment Income (8) 0.04
Higher Taxes Other Than Income (9) (0.01)
InfraSource and Energy Services (10) 0.01
Other 0.03
-------------
2003 Pro Forma Earnings 1.22
Impairment of Investment in Sithe Energies, Inc. (11) (0.40)
Cumulative Effect of Adopting SFAS 143 0.34
March 3 ComEd Settlement Agreement (12) (0.05)
-------------
2003 Earnings per Diluted Share $ 1.11
=============
(1) Executive severance partially offset by favorable adjustments to
previous severance estimates. A portion of the executive severance was
not tax deductible. As a result, the after-tax impact on earnings is
$0.04 per share.
(2) Primarily related to cooler winter weather in 2003 versus 2002. Heating
degree-days in the ComEd and PECO service territories were 17% and 33%
higher, respectively.
(3) Reflects increased CTC collections by ComEd due to an increase in
customer shopping and changes in the wholesale market price of
electricity, net of increased mitigation factors. The decrease in
wholesale prices also resulted in a decrease in revenue from ComEd's
PPO customers.
(4) O&M expense, excluding outage costs, severance costs, InfraSource and
Energy Services O&Ms, and the March 3 ComEd Settlement Agreement,
increased due to the implementation of SFAS 143, the acquisition of two
generating stations in Texas in April 2002, and the acquisition of
Sithe New England assets in November 2002.
(5) Relates to four planned nuclear refueling outages in 2002 as compared
to two refueling outages in 2003.
(6) Depreciation and amortization expense was lower primarily due to lower
depreciation rates and lower recoverable transition cost amortization
at ComEd and lower decommissioning expense at Generation due to the
adoption of SFAS 143, partially offset by increased depreciation
related to higher depreciable plant balances, reflecting Generation's
plant acquisitions in 2002, and higher CTC amortization at PECO.
(7) Reflects less outstanding debt and refinancing of existing debt at
lower interest rates, partially offset by debt related to acquisitions
after the first quarter of 2002.
(8) Primarily reflects higher investment income related to nuclear
decommissioning trust funds.
(9) Taxes Other Than Income was higher due to a favorable 2002 adjustment
to real estate taxes on leased property held by ComEd.
(10) Reflects lower costs at InfraSource and Energy Services, partially
offset by lower revenues.
(11) Impairment of the investment held by Generation in Sithe Energies, Inc.
(12) Agreement reached by ComEd and various Illinois suppliers, customers,
and governmental parties regarding several matters affecting ComEd's
rates for electric service.
8
EXELON CORPORATION
Consolidating Statements of Income
(unaudited)
(in millions)
Three Months Ended March 31, 2003
-------------------------------------------------------------------------------
Energy Exelon
Delivery Generation Enterprises Corp/Elim Consolidated
-------------------------------------------------------------------------------
Operating Revenues $ 2,642 $ 1,863 $ 580 $(1,011) $ 4,074
Operating Expenses
Purchased Power 984 841 64 (982) 907
Fuel 191 364 275 -- 830
Operating and Maintenance 400 471 256 (34) 1,093
Depreciation and Amortization 230 45 10 5 290
Taxes Other Than Income 143 48 2 4 197
------- ------- ------- ------- -------
Total Operating Expenses 1,948 1,769 607 (1,007) 3,317
------- ------- ------- ------- -------
Operating Income (Loss) 694 94 (27) (4) 757
Other Income and Deductions
Interest Expense (196) (19) (3) (7) (225)
Distributions on Preferred
Securities of Subsidiaries (12) -- -- -- (12)
Equity in Earnings (Losses) of
Unconsolidated Affiliates, net -- 19 2 (3) 18
Impairment of Investment in Sithe
Energies, Inc. -- (200) -- -- (200)
Other, Net 31 33 (2) (3) 59
------- ------- ------- ------- -------
Total Other Income and Deductions (177) (167) (3) (13) (360)
------- ------- ------- ------- -------
Income (Loss) Before Income Taxes and Cumulative
Effect of a Change in Accounting Principle 517 (73) (30) (17) 397
Income Taxes 192 (21) (13) (10) 148
------- ------- ------- ------- -------
Income (Loss) Before Cumulative Effect of a Change
in Accounting Principle 325 (52) (17) (7) 249
Cumulative Effect of a Change in Accounting
Principle, Net of Income Taxes 5 108 (1) -- 112
------- ------- ------- ------- -------
Net Income (Loss) $ 330 $ 56 $ (18) $ (7) $ 361
======= ======= ======= ======= =======
Three Months Ended March 31, 2002
-------------------------------------------------------------------------------
Energy Exelon
Delivery Generation Enterprises Corp/Elim Consolidated
-------------------------------------------------------------------------------
Operating Revenues $ 2,335 $ 1,461 $ 490 $ (929) $ 3,357
Operating Expenses
Purchased Power 889 619 52 (892) 668
Fuel 135 209 152 -- 496
Operating and Maintenance 373 432 301 (39) 1,067
Depreciation and Amortization 247 63 17 8 335
Taxes Other Than Income 132 49 2 3 186
------- ------- ------- ------- -------
Total Operating Expenses 1,776 1,372 524 (920) 2,752
------- ------- ------- ------- -------
Operating Income (Loss) 559 89 (34) (9) 605
Other Income and Deductions
Interest Expense (221) (17) (5) (6) (249)
Distributions on Preferred Securities
of Subsidiaries (11) -- -- -- (11)
Equity in Earnings (Losses) of
Unconsolidated Affiliates, net -- 23 (7) (3) 13
Other, Net 14 16 (1) (1) 28
------- ------- ------- ------- -------
Total Other Income and Deductions (218) 22 (13) (10) (219)
------- ------- ------- ------- -------
Income (Loss) Before Income Taxes and Cumulative
Effect of a Change in Accounting Principle 341 111 (47) (19) 386
Income Taxes 126 45 (19) (4) 148
------- ------- ------- ------- -------
Income (Loss) Before Cumulative Effect of a
Change in Accounting Principle 215 66 (28) (15) 238
Cumulative Effect of a Change in Accounting
Principle, Net of Income Taxes -- 13 (243) -- (230)
------- ------- ------- ------- -------
Net Income (Loss) $ 215 $ 79 $ (271) $ (15) $ 8
======= ======= ======= ======= =======
9
EXELON CORPORATION
Business Segment Comparative Income Statements
(unaudited)
(in millions)
Energy Delivery
--------------------------------------------------------
Three Months Ended March 31,
---------------------------------------
2003 2002 Variance
------------------ ------------------ ---------------
Operating Revenues $ 2,642 $ 2,335 $ 307
Operating Expenses
Purchased Power 984 889 95
Fuel 191 135 56
Operating and Maintenance 400 373 27
Depreciation and Amortization 230 247 (17)
Taxes Other Than Income 143 132 11
------------------ ------------------ ---------------
Total Operating Expenses 1,948 1,776 172
------------------ ------------------ ---------------
Operating Income 694 559 135
Other Income and Deductions
Interest Expense (196) (221) 25
Distributions on Preferred Securities of Subsidiaries (12) (11) (1)
Other, Net 31 14 17
------------------ ------------------ ---------------
Total Other Income and Deductions (177) (218) 41
------------------ ------------------ ---------------
Income Before Income Taxes and Cumulative Effect
of a Change in Acounting Principle 517 341 176
Income Taxes 192 126 66
------------------ ------------------ ---------------
Income Before Cumulative Effect of a Change in
Accounting Principle 325 215 110
Cumulative Effect of a Change in Accounting
Principle, Net of Income Taxes 5 - 5
------------------ ------------------ ---------------
Net Income $ 330 $ 215 $ 115
================== ================== ===============
Generation
--------------------------------------------------------
Three Months Ended March 31,
---------------------------------------
2003 2002 Variance
------------------ ------------------ ---------------
Operating Revenues $ 1,863 $ 1,461 $ 402
Operating Expenses
Purchased Power 841 619 222
Fuel 364 209 155
Operating and Maintenance 471 432 39
Depreciation and Amortization 45 63 (18)
Taxes Other Than Income 48 49 (1)
------------------ ------------------ ---------------
Total Operating Expenses 1,769 1,372 397
------------------ ------------------ ---------------
Operating Income 94 89 5
Other Income and Deductions
Interest Expense (19) (17) (2)
Equity in Earnings of Unconsolidated Affiliates, net 19 23 (4)
Impairment of Investment in Sithe Energies, Inc. (200) - (200)
Other, Net 33 16 17
------------------ ------------------ ---------------
Total Other Income and Deductions (167) 22 (189)
------------------ ------------------ ---------------
Income (Loss) Before Income Taxes and Cumulative Effect
of Changes in Acounting Principles (73) 111 (184)
Income Taxes (21) 45 (66)
------------------ ------------------ ---------------
Income (Loss) Before Cumulative Effect of Changes in
Accounting Principles (52) 66 (118)
Cumulative Effect of Changes in Accounting
Principles, Net of Income Taxes 108 13 95
------------------ ------------------ ---------------
Net Income $ 56 $ 79 $ (23)
================== ================== ===============
10
EXELON CORPORATION
Business Segment Comparative Income Statements
(unaudited)
(in millions)
Enterprises
------------------------------------------------------
Three Months Ended March 31,
------------------------------------
2003 2002 Variance
---------------- ----------------- ---------------
Operating Revenues $ 580 $ 490 $ 90
Operating Expenses
Purchased Power 64 52 12
Fuel 275 152 123
Operating and Maintenance 256 301 (45)
Depreciation and Amortization 10 17 (7)
Taxes Other Than Income 2 2 -
---------------- ----------------- ---------------
Total Operating Expenses 607 524 83
---------------- ----------------- ---------------
Operating Income (Loss) (27) (34) 7
Other Income and Deductions
Interest Expense (3) (5) 2
Equity in Earnings (Losses) of
Unconsolidated Affiliates, net 2 (7) 9
Other, Net (2) (1) (1)
---------------- ----------------- ---------------
Total Other Income and Deductions (3) (13) 10
---------------- ----------------- ---------------
Income (Loss) Before Income Taxes and Cumulative
Effect of Changes in Acounting Principles (30) (47) 17
Income Taxes (13) (19) 6
---------------- ----------------- ---------------
Income (Loss) Before Cumulative Effect of
Changes in Accounting Principles (17) (28) 11
Cumulative Effect of Changes in Accounting
Principles, Net of Income Taxes (1) (243) 242
---------------- ----------------- ---------------
Net Income (Loss) $ (18) $ (271) $ 253
================ ================= ===============
Corporate and Eliminations
------------------------------------------------------
Three Months Ended March 31,
------------------------------------
2003 2002 Variance
---------------- ----------------- ---------------
Operating Revenues $ (1,011) $ (929) $ (82)
Operating Expenses
Purchased Power (982) (892) (90)
Operating and Maintenance (34) (39) 5
Depreciation and Amortization 5 8 (3)
Taxes Other Than Income 4 3 1
---------------- ----------------- ---------------
Total Operating Expenses (1,007) (920) (87)
---------------- ----------------- ---------------
Operating Income (Loss) (4) (9) 5
Other Income and Deductions
Interest Expense (7) (6) (1)
Equity in Earnings (Losses) of
Unconsolidated Affiliates, net (3) (3) -
Other, Net (3) (1) (2)
---------------- ----------------- ---------------
Total Other Income and Deductions (13) (10) (3)
---------------- ----------------- ---------------
Income (Loss) Before Income Taxes (17) (19) 2
Income Taxes (10) (4) (6)
---------------- ----------------- ---------------
Net Income (Loss) $ (7) $ (15) $ 8
================ ================= ===============
11
EXELON CORPORATION
Consolidated Balance Sheets
(unaudited)
(in millions)
March 31, December 31,
2003 2002
------------------- -------------------
Current Assets
Cash and Cash Equivalents $ 503 $ 469
Restricted Cash 322 396
Accounts Receivable, net
Customers 2,121 2,095
Other 243 265
Receivable from Unconsolidated Affiliate 20 32
Inventories - Fossil Fuel 163 218
Inventories - Materials and Supplies 317 306
Deferred Income Taxes 10 6
Other 625 331
------------------- -------------------
Total Current Assets 4,324 4,118
------------------- -------------------
Property Plant and Equipment, net 20,237 17,134
Deferred Debits and Other Assets
Regulatory Assets 5,459 5,938
Nuclear Decommissioning Trust Funds 3,032 3,053
Investments 1,171 1,393
Goodwill, net 4,788 4,992
Other 890 850
------------------- -------------------
Total Deferred Debits and Other Assets 15,340 16,226
------------------- -------------------
Total Assets $ 39,901 $ 37,478
=================== ===================
Liabilities and Shareholders' Equity
Current Liabilities
Notes Payable $ 900 $ 681
Notes Payable to Unconsolidated Affiliate 534 534
Long-Term Debt Due within One Year 1,147 1,402
Accounts Payable 1,815 1,563
Accrued Expenses 1,182 1,311
Other 481 483
------------------- -------------------
Total Current Liabilities 6,059 5,974
------------------- -------------------
Long-Term Debt 13,368 13,127
Deferred Credits and Other Liabilities
Deferred Income Taxes 3,849 3,702
Unamortized Investment Tax Credits 298 301
Nuclear Decommissioning Liability for Retired Units - 1,395
Asset Retirement Obligation 2,406 -
Pension Obligation 1,848 1,959
Non-Pension Postretirement Benefits Obligation 911 877
Spent Nuclear Fuel Obligation 861 858
Regulatory Liabilities 633 -
Other 976 871
------------------- -------------------
Total Deferred Credits and Other Liabilities 11,782 9,963
------------------- -------------------
Minority Interest of Consolidated Subsidiaries 78 77
Preferred Securities of Subsidiaries 610 595
Shareholders' Equity
Common Stock 7,099 7,059
Deferred Compensation - (1)
Retained Earnings 2,254 2,042
Accumulated Other Comprehensive Income (Loss) (1,349) (1,358)
------------------- -------------------
Total Shareholders' Equity 8,004 7,742
------------------- -------------------
Total Liabilities and Shareholders' Equity $ 39,901 $ 37,478
=================== ===================
12
EXELON CORPORATION
Consolidated Statements of Cash Flows
(unaudited)
(in millions)
Three Months Ended
March 31,
---------------------------
2003 2002
------------- -------------
Cash Flows From Operating Activities
Net Income $ 361 $ 8
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization, including nuclear fuel 423 427
Cumulative Effect of a Change in Accounting Principle (net of income taxes) (112) 230
Provision for Uncollectible Accounts 31 29
Deferred Income Taxes (64) 67
Equity in (Earnings) Losses of Unconsolidated Affiliates, net (18) (13)
Impairment of Investment in Sithe Energies, Inc. 200 -
Net Realized Losses on Nuclear Decommissioning Trust Funds (6) 10
Other Operating Activities (11) 10
Changes in Assets and Liabilities:
Accounts Receivable (22) 58
Inventories 43 13
Accounts Payable, Accrued Expenses and Other Current Liabilities (99) (7)
Other Current Assets (262) (134)
Deferred Energy Costs (28) 34
Pension and Non-Pension Postretirement Benefits Obligations (77) (3)
Other Noncurrent Assets and Liabilities 59 97
------------- -------------
Net Cash Flows Provided by Operating Activities 418 826
------------- -------------
Cash Flows From Investing Activities
Capital Expenditures (427) (586)
Proceeds from Nuclear Decommissioning Trust Funds 572 580
Investment in Nuclear Decommissioning Trust Funds (622) (605)
Note Receivable from Unconsolidated Affiliate (35) (46)
Other Investing Activities 20 27
------------- -------------
Net Cash Flows Used in Investing Activities (492) (630)
------------- -------------
Cash Flows From Financing Activities
Issuance of Long-Term Debt 951 408
Retirement of Long-Term Debt (963) (471)
Issuance of Preferred Securities of Subsidiaries 200 -
Retirement of Preferred Securities of Subsidiaries (200) -
Change in Short-Term Debt 219 78
Dividends Paid on Common Stock (145) (141)
Change in Restricted Cash 74 135
Proceeds from Employee Stock Plans 31 18
Other Financing Activities (59) (12)
------------- -------------
Net Cash Flows Provided by Financing Activities 108 15
------------- -------------
Change In Cash and Cash Equivalents 34 211
Cash and Cash Equivalents at Beginning of Period 469 485
------------- -------------
Cash and Cash Equivalents at End of Period $ 503 $ 696
============= =============
13
EXELON CORPORATION
Electric Sales Statistics
Three Months Ended March 31,
---------------------------------------------
(in GWhs) 2003 2002 % Change
- --------------------------------------------------- --------------------- --------------------- ---------------
Supply
Nuclear, excluding AmerGen 29,330 27,533 6.5%
Purchased Power - Generation (a) 20,029 18,093 10.7%
Fossil, excluding Sithe, and Hydro (b) 5,050 2,698 87.2%
--------------------- ---------------------
Power Team Supply 54,409 48,324 (c) 12.6%
Purchased Power - Other 147 - n.m.
--------------------- ---------------------
Total Electric Supply Available for Sale 54,556 48,324 12.9%
Less: Line Loss and Company Use (1,974) (1,867) 5.7%
--------------------- ---------------------
Total Energy Sales 52,582 46,457 13.2%
===================== =====================
Energy Sales
Retail Sales (d) 32,207 29,913 7.7%
Power Team Market Sales (a) 23,815 19,324 23.2%
Interchange Sales and Sales to Other Utilities 698 739 (5.5%)
--------------------- ---------------------
56,720 49,976 13.5%
Less: Distribution Only Sales (4,138) (3,519) 17.6%
--------------------- ---------------------
Total Energy Sales 52,582 46,457 13.2%
===================== =====================
(a) Purchased power and market sales do not include trading volume of 9,527 GWhs and 14,239 GWhs for the three months
ended March 31, 2003 and 2002, respectively.
(b) 2003 includes supply from plants acquired from TXU in April 2002 and Sithe Energies in November 2002.
(c) Certain reallocations have been made related to 2002.
(d) Includes Exelon Energy sales of 1,262 GWhs and 1,105 GWhs for the three months ended March 31, 2003 and 2002,
respectively.
n.m. not meaningful.
14
EXELON CORPORATION
Energy Delivery Sales Statistics
For the Three Months Ended March 31,
ComEd PECO
-------------------------------------------- -----------------------------------------
Electric Deliveries (MWh) 2003 2002 % Change 2003 2002 % Change
----------------- ------------- ------------ ------------- ---------------- ----------
Bundled Deliveries (a)
Residential 6,886,035 6,408,683 7.4% 3,115,470 2,055,598 51.6%
Small Commercial & Industrial 5,627,359 5,449,634 3.3% 1,780,329 1,757,382 1.3%
Large Commercial & Industrial 1,484,096 1,956,006 (24.1%) 3,481,567 3,351,069 3.9%
Public Authorities & Electric Railroads 1,415,840 1,800,797 (21.4%) 252,783 193,347 30.7%
----------------- ------------- ----------- ----------------
15,413,330 15,615,120 (1.3%) 8,630,149 7,357,396 17.3%
----------------- ------------- ----------- ----------------
Unbundled Deliveries (b)
Alternative Energy Suppliers
Residential (c) n/a 264,122 791,661 (66.6%)
Small Commercial & Industrial 1,348,357 1,003,883 34.3% 201,992 96,522 109.3%
Large Commercial & Industrial 1,832,007 1,385,986 32.2% 209,607 102,828 103.8%
Public Authorities & Electric Railroads 281,714 138,042 104.1% - 46 (100.0%)
----------------- ------------- ----------- ----------------
3,462,078 2,527,911 37.0% 675,721 991,057 (31.8%)
----------------- ------------- ----------- ----------------
PPO (ComEd Only)
Small Commercial & Industrial 793,530 763,224 4.0%
Large Commercial & Industrial 1,432,553 1,311,080 9.3%
Public Authorities & Electric Railroads 537,227 242,325 121.7%
----------------- -------------
2,763,310 2,316,629 19.3%
----------------- -------------
Total Unbundled Deliveries 6,225,388 4,844,540 28.5% 675,721 991,057 (31.8%)
----------------- ------------- ----------- ----------------
Total Retail Deliveries 21,638,718 20,459,660 5.8% 9,305,870 8,348,453 11.5%
================= ============= =========== ================
Gas Deliveries (mmcf) (PECO only) 39,626 31,357 26.4%
=========== ================
Revenue (in thousands)
Bundled Revenue (a)
Residential $ 545,564 $ 517,805 5.4% $ 358,658 $ 243,447 47.3%
Small Commercial & Industrial 397,262 391,085 1.6% 194,043 188,722 2.8%
Large Commercial & Industrial 74,097 102,106 (27.4%) 266,456 244,332 9.1%
Public Authorities & Electric Railroads 83,975 91,656 (8.4%) 21,812 18,152 20.2%
----------------- ------------- ----------- ----------------
1,100,898 1,102,652 (0.2%) 840,969 694,653 21.1%
----------------- ------------- ----------- ----------------
Unbundled Revenue (b)
Alternative Energy Suppliers
Residential (c) n/a 17,496 54,144 (67.7%)
Small Commercial & Industrial 40,738 12,446 227.3% 9,782 4,662 109.8%
Large Commercial & Industrial 48,427 9,656 401.5% 5,867 2,913 101.4%
Public Authorities & Electric Railroads 9,248 1,826 406.5% - 6 (100.0%)
----------------- ------------- ----------- ----------------
98,413 23,928 311.3% 33,145 61,725 (46.3%)
----------------- ------------- ----------- ----------------
PPO (ComEd Only)
Small Commercial & Industrial 49,471 43,060 14.9%
Large Commercial & Industrial 71,847 64,102 12.1%
Public Authorities & Electric Railroads 27,221 12,750 113.5%
----------------- -------------
148,539 119,912 23.9%
----------------- -------------
Total Unbundled Revenue 246,952 143,840 71.7% 33,145 61,725 (46.3%)
----------------- ------------- ----------- ----------------
Total Retail Electric Revenue 1,347,850 1,246,492 8.1% 874,114 756,378 15.6%
Wholesale Electric Revenue 28,880 23,647 22.1% 2,720 985 176.1%
Other Revenue 47,330 45,319 4.4% 52,506 53,801 (2.4%)
Gas Revenue (PECO only) n/a n/a 288,199 208,606 38.2%
----------------- ------------- ------------------ ----------
Total Revenues $ 1,424,060 $ 1,315,458 8.3% $ 1,217,539 $1,019,770 19.4%
================= ============= =============================
Heating Degree-Days 2003 2002 Normal 2003 2002 Normal
----------------- ------------- ---------- --------- ---------------- --------------
Heating Degree-Days 3,366 2,865 3,254 2,752 2,067 2,551
(a) Bundled service reflects deliveries to customers taking electric service under tariffed rates, which include
the cost of energy and the delivery cost of the transmission and distribution of the energy. PECO's tariffed
rates also include a CTC charge.
(b) Unbundled service reflects customers electing to receive electric generation service under the ComEd PPO
option or an alternative energy supplier. Revenue from customers choosing the ComEd PPO option includes an
energy charge at market rates, transmission and distribution charge and a CTC charge. Revenue from customers
choosing an alternative energy supplier includes a distribution charge and a CTC charge. Transmission charges
received from alternative energy suppliers are included in wholesale and miscellaneous revenue.
(c) On May 1, 2002, all ComEd residential customers were eligible to choose their supplier of electricity;
however, as of March 31, 2003, no alternative electric supplier has sought approval from the Illinois Commerce
Commission and no electric utilities have chosen to enter the ComEd residential market for the supply of
electricity.
n/a - not applicable
15
EXELON CORPORATION
Exelon Generation Power Marketing Statistics
Three Months Ended March 31,
-------------------------------------------
2003 2002
------------------ -------------------
GWh Sales
Energy Delivery 29,346 27,750
Exelon Energy 1,248 1,250
Market Sales 23,815 19,324
------------------ -------------------
Total Sales (a) 54,409 48,324
================== ===================
Average Margin ($/MWh)
Average Realized Revenue
Energy Delivery $ 30.87 $ 29.98
Exelon Energy 43.28 45.60
Market Sales 37.05 28.15
Total Sales - without trading 33.96 29.63
Average Purchased Power and Fuel Cost - without trading $ 21.29 $ 16.74
Average Margin - without trading $ 12.67 $ 12.89
Around-the-clock Market Prices ($/MWh)
PJM $ 49.00 $ 22.00
MAIN 37.00 19.50
- ----------------------------------------------------------------------------------------------
2003 Earnings Guidance - April through December
Around-the-clock Market Prices ($/MWh)
PJM $ 42.50
MAIN 28.00
NEPOOL 51.00
Gas Prices ($/Mmbtu)
Henry Hub $ 5.75
Guidance based on forward prices as of April 15, 2003.
- ----------------------------------------------------------------------------------------------
(a) Total sales do not include trading volume of 9,527 GWhs and 14,239 GWhs
for the three months ended March 31, 2003 and 2002, respectively.
Additionally, 2003 reflects the sale of energy from plants acquired from
TXU in April 2002 and Sithe Energies in November 2002.
16
Exhibit 99.2
Transcription of Exelon's April 29, 2003 Conference Call
The information contained herein is a textual representation of the April 29,
2003 Exelon first quarter 2003 earnings conference call. There may be material
errors, omissions or inaccuracies in the reporting of the conference call
described below. This transcript has been derived from audio sources. The audio
conference call should be considered the ultimate source of this content. The
call will be archived on Exelon's web site: www.exeloncorp.com. (Please select
the Investor Relations page.) Telephone replays will be available until May 16.
The U.S. call-in number for replays is 877/519-4471 and the international
call-in number is 973/341-3080. The confirmation code is 3851095.
THE OPERATOR
Good morning ladies and gentlemen and welcome to the Exelon Corporation First
Quarter Earnings Conference Call. At this time all participates have been placed
on a listen only mode and the floor will be open for your questions following
the presentation. It now my pleasure to turn the floor to your host Ms. Linda
Byus. Linda, the floor is yours.
MS. LINDA BYUS
Thank you. Good morning and welcome to the Exelon's first quarter earnings
review and update conference call. Thank you for joining us this morning. You
should have received the copy of our earnings release late yesterday. If you
haven't received it the release is available on the Exelon website at www.
Exelon Corp.com or you can call Espi Gonzales at 312-394-5740 and she will fax
or email the release to you. This call is being recorded and will be available
afternoon today through May 16 by dialing 877-549-4471. The international
calling number is 973-341-3080. The confirmation code is 3851095. In addition,
the call will be archived on the Exelon website. Before we begin today's
discussion, let me remind you that the earning release and the other matters we
may discuss in today's call may contain forward-looking statement and estimates
that are subject to various risks and uncertainties. Please refer to our SEC
filings for discussions and factors that may cause results to differ from
management projections, forecast, and expectations. If you have reviewed our
earnings release you've already seen a change in our presentation of earnings
information consistent with regulation to use of non-GAAP financial measures. In
our press release and during this call we will discuss pro forma operating
results that excludes specific non-operational items such as accounting changes,
regulatory changes or items that we view as one time items. We believe these pro
forma results are representative of the underling operational results of the
company. In our earnings release, which is available on our website will provide
a reconciliation of the differences between GAAP results and pro forma operating
results. With me today are John Rowe Chairman and CEO, Oliver Kingsley Senior
Executive Vice President and Bob Shapard Executive Vice President and Chief
Financial Officer. We also have Ian McLean President of Power Team and Barry
Mitchell Senior Vice President and Treasurer along with a number of our senior
management team available to answer your question. We have scheduled an hour for
this call. We have large material to cover this morning and we want to
(indiscernible) time for question. Robert will begin with a brief discussion of
our first quarter results.
- ---------------------------------------------
MR ROBERT SHAPARD
Thanks Linda and good morning everyone. Well given the problem we had this
morning you should be relieved we are not in the telecommunications systems. We
released earnings last night for Exelon Corporation first quarter result $361
million or $1.11 per diluted share. Reported number includes the one-time items.
It includes the $112 million after tax increase in earnings for the adoption of
FAS-143, which I will describe in a minute. A $17 million after tax charge
resulting from the first quarter Commonwealth Edison regulatory settlement. And
during the quarter we also took a one-time $130 million after tax charge with
the impairment of our investment Sithe Energies. Operating earnings excluding
these 3 items were $397 million or $1.22. This compares with 250 million or 77
cents per share in the prior years quarter. We have a lot of things to talk
about today so I am not going to go through the earnings release in detail. I
will just simply give you some color you can cover details in the Q&A. We had
colder weather in both ComEd and PECO service territories during the first
quarter compared with last year. Exelon consolidated colder weather boosted
earnings by about 15 cents a share. For Energy Delivery, we estimate that colder
weather provided about 14 cents and about a penny at Genco compared to normal
weather. Our weather for
1
first quarter `03 was 4 cents above normal. Now the analysis of the impact of
the weather is as much more art than science and over the last year our delivery
business has refined and made adjustments to the calculation of the impact of
weather on earnings to improve the quality of these numbers. And because of some
of these changes we have made in the analysis the year over year first quarter
impact is about 4 cents less than it would have been under the old methodology.
If you try to do that reconciliation we could help you with that if you needed.
But most relevant is the first quarter of `03 is in fact 4 cents above what we
have seen to be normal weather. One of the single largest items of earnings
improvement this year over last was the increase in transition charge revenues
or what we refer to as CTC revenue collected at ComEd. As you may recall ComEd's
CTC has adjusted annually on June first of each year and the CTC or transition
charge has an inversed relationship to the wholesale prices. The whole sale
prices go down the CTC goes up with the period. Now last June when we last reset
the CTC, it was based on relatively low wholesale prices at the time. Since
prices were relatively low at that time the CTC was reset higher. So, the first
quarter of this year, we're working off that higher CTC and as a result the
increase in revenues in the first quarter of this year or first quarter last
year was about $80 million as a result of the higher CTC about 15 cents a share.
We expect that CTC to be reset in June and it is likely it will go down given
what prices have done. So, we think there will be some giveback in the remainder
of the year and I will talk about that. As you saw in our press release the
final impact of the adoption of FAS-143 which relates to retirement of
long-lived assets was substantially different that what we earlier anticipated.
We earlier anticipated that large one-time gain perhaps 1.9 billion in the first
quarter of this year and in fact with the final adoption we recognized a
one-time gain of cumulative effect of only $112 million, which was a small
obviously and reasonably expected. We are talking taking a fairly early and
aggressive approach to evaluate the impact of FAS-143 given the complexity of
the issue and the large number of nuclear plants we have. And in early April of
this year upon deliberations with our external auditors and the financial
accounting standard board our interpretation of the rule changed somewhat. The
details of that will be in our 10-Q which will be filed later this week, but to
briefly describe you what happened FAS-143 essentially restates the present
value of our decommissioning liability. It is simply a timing issue. We have no
change in view of our ultimate decommissioning liability, but as of this point
in time, it restated that liability down with the anticipation of recognizing
higher liability going forward. So, what we've done rather than take -- rather
than restate that down and take the difference through the income statement, our
new approach is to take that reduction in the decommissioning liability and
reclassify it to regulatory liability. Because in fact this is the end of the
life of these units that we had excess asset over the liability. It would be
refunded to customers. No, we don't think that will happen simply a timing issue
and what we account for. We reclassified the portion of decommissioning
liability to a regulatory liability rather than take it to the income statement.
And we also as a result will not have to drag on earnings going forward that we
originally told you we would have. Now we do have a small P&L impact this year
and what that simply is we stated these liabilities as of January 1st of '01 at
the time of the merger. What we've now done is taken any decommissioning expense
recognized from January 1st '01 to today and reverse that back to the P&L and
that's this $112 million. We said we will not recognize the decommissioning
expense going forward through the P&L. So we simply reverse that expense in
January of '01 and going forward will not be a drag on earning. During the first
quarter we did recognize an impairment on investment in Sithe Energies and we
are referring here to our 49.9 percent interest in Sithe Energies, not including
the assets which we purchased late last year. We considered a variety of factors
in the decision to record the impairment including the exploration of the
possible sale of these interest and discussions ran in the possible sale
indicated that the fair value of the investment was below what we had on the
books. So as such, we've taken an impairment to recognize the $200 million
pretax impairment and this impairment reduces our book value in the investment
to $212 million on March 31st. In the earnings release we do provide a great
deal of details supporting our numbers. I'll not go through that detail with
people. We'll certainly allow you to ask questions about it in the Q&A. I will
come back in a few moment and talk about our outlook for 2003 based on this
first quarter, but for now I'll now turn over to John.
- ---------------------------------------------
MR. JOHN ROWE
Good morning everyone and I apologize for delayed communication systems
(indiscernible). As you know we finished in 2002, our second good year since we
closed the Unicom PECO merger. During that period we had provided average annual
earnings per share growth of 12 percent and raised our dividend twice for an
average range of 4.3 percent. We have retired $1.2 billion of transition debt
and we financed $2.8 billion of other debt resulting in total interest expense
reduction of about $120 billion. These numbers do not include an additional more
than $1.7 billion of refinancing as Barry Mitchell and his treasury group has
already completed in 2003. Interest rate savings
2
are one of the profit opportunities we have to help offset cost increases in
other areas. Under the leadership of all of Oliver Kingsley and Jack Skolds, our
nuclear fleet has achieved a 93.5 percent annual nuclear capacity factor during
this period, and in the first quarter of 2003, we were slightly better than
that. With Pam Strobel's leadership, our energy delivery system has improved
reliability by 26 percent in outage duration and 18 percent in outage frequency
and these are systemwide numbers. The numbers in Northern Illinois are
significantly higher than that in terms of improvement and higher yet in Chicago
where we had our problems 3.5 years ago. As all of you know, because we've
talked about it many times, my prime goal is how to see this company be the
nation's leader in delivering consistent, reliable earnings, and earnings
growth. I believe consistency is the hallmark of long-term value for
shareholders and I have been a value-driven CEO since long before it was
established. In that context, as you know, we have looked from time-to-time at
additional merger and acquisition opportunities because we believe we were so
successful in the Unicom and PECO merger. But we have not yet seen and frankly
do not expect to see in the near future a large opportunity that meets our very
stringent requirements that we get an accretive transaction and one that has
attractive return on capital. So it becomes evermore obvious that the best ways
we have of delivering consistent earnings growth, earnings that will justify
higher share value and higher price earnings ratio is to focus on what we do
every day in an effort to improve the quality of our earnings and the level of
our cash flow. As we announced about 3 months ago, our effort to do that is
called Exelon Way. It is the next step in bringing this company to explore
potential. As we promised today, we are going to start giving you some substance
underneath the Exelon Way Concept. But this is our key and all-encompassing
effort to achieve our vision of becoming the best and most consistently
profitable electricity and gas company in the United States. The key to the
success of Exelon Way is getting much higher productivity. That doesn't mean
saving money by doing less work, it means doing more work with less money. And
when it comes to that, having the right people in the right places is absolutely
key. In a long and increasingly long career, I have not seen anyone better at
finding this kind of productivity than Oliver Kingsley whose remarkable work,
first with the ComEd Nuclear Fleet and with the whole Exelon Nuclear Fleet and
now with all of Exelon Generation is in my view without peer and without
parallel. Accordingly, last night I recommended to the Exelon Board Of Directors
and they unanimously accepted my recommendation that we elect Oliver Kingsley to
the position of President and Chief Operating Officer of Exelon Corporation. In
this role, he will oversee both generation and energy delivery. He has the
mandate of continuing the consolidation, continuing the productivity
improvement, continuing the commitment to world-class operation that he has done
so superbly in Exelon Generation. I believe there is no one thing that I can do
that puts more substance in Exelon Way right now than to give Oliver Kingsley
(indiscernible) as our new COO. We haven't forgotten the value of a whole lot of
other people either. First, Pam Strobel who has brought about major improvements
in delivery over the past several years was elected Executive Vice President and
Chief Administrative Officer of Exelon Corporation. She will oversee the
business services company, which has the important information technology and
supply chain initiative. She will also oversee the enterprise group and help
George Gilmore with his effort to liquidate those investment, and she will serve
as chair of the Exelon Corporate strategy committee. We have made a group of
other appointments including Mike Bemis to replace Pam as President of Exelon
Energy Delivery, John Young to replace Mike as President of Exelon Power, Ken
Lawrence, who has been the Exelon right arm in Philadelphia these past two
years, was elected chairman. Ken intends to retire on November 1st, and he will
be succeeded by Denis O'Brien, and Frank Clark, who has been my own right hand
here in Illinois in so many things, will continue in his role as President of
ComEd. So, I will now turn the ball over to the person that I have chosen to
give you the reality in the Exelon Way, Oliver Kingsley.
- ---------------------------------------------
MR. OLIVER KINGSLEY
John said the Exelon Way is the next step in the evolution of Exelon. It keeps
the company moving forward to reach its full potential. I am very happy to take
the leadership role in moving Exelon to the next level. Improved integration of
operations and consolidation of support functions are the first steps towards
achieving our new business model. The key component of the Exelon Way is
consolidating Commonwealth Edison and PECO operations into one functional energy
delivery unit while still maintaining the very strong regional presence that
each company enjoys today. Serving our customers and keeping the lights on will
still be our primary job. This consolidation will result in significant
efficiencies and process improvement by lowering operating cost and increasing
free cash flow. Another opportunity for significant savings is our supply chain.
Each year Exelon's spends over $2 billion buying resources, materials, and
equipment. Leveraging buying power of our system and using proven best practices
should result in savings between 5 and 10 percent of total spent. Combining our
support functions including information systems, human resources, finance, and
communications will allow us to derive optimization and additional savings. We
are just starting to put meat on the bone; however, we do have significant
3
benchmarking behind our targets. So, we announce this with a real plan. I will
give you some broad overview numbers today. Our goal is 300 to 600 million of
cash savings annually. In 2004, savings will be toward the lower end of that
range. Our 2004 goals of 150 million reduction in capital spending and an
additional 200 million pre-tax reduction in cash O&M expense. This results in an
after tax increase in free cash flow of $270 million in 2004.
By business unit, we expect about 60 percent of the capital spending reduction
to come from energy delivery. Remaining 40 percent will come from the generating
company and corporate. On the O&M side, half of the savings will come from
energy delivery. The quarter from Genco and the quarter from corporate and other
units. In both 2005 and 2006, we expect a step up in both CAPEX and O&M expense
savings. By '06, we expect to be at or above $600 million in total cash savings.
I am excited about this opportunity; we have to create value through the Exelon
Way. I am committed to make this initiative successful. Now Bob Shapard will
talk about the outlook for the balance of 2003.
- ---------------------------------------------
MR. ROBERT SHAPARD
Before I get back to 2003 let me just add my two sentences on Exelon Way. I do
believe will enable us to meet or exceed the 5 percent annual growth target we
have in earnings. And critically it will provide us with cash we need to
increase our balance sheet flexibility, which will allow us to successfully deal
with and handle any transition issues in Illinois in 2007. So -- what do we
expect to see for the remainder of 2003, as we indicated in the press release we
are reaffirming our 2003 earnings guidance for the range of $4.80 to $5 a share.
Basically our strategy here is no surprises just keep delivering. I don't think
we expect to see any surprise. With one quarter down to three to go. We do have
some changes in assumptions reflecting first quarter results. Based on the final
adoption of FAS-143, we do not expect to drag on earnings in 2003 compared to
2002. Previously, we had told you that we had $0.07 drag and now with the final
adoption we don't expect to see any drag there. We also told you that we
expected Enterprises to break even this year, which would result in a 16 cents
per share improvement over the last year. In the first quarter Enterprises did
report about a 4 cents a share loss, the loss related primarily to exiting a
supply agreement with the retail business and write down of the venture capital
businesses we do expect we could loose a few more pennies this year. So the
improvement in Enterprises this year will be more like 10 cents rather than 16.
So not quite as good as we thought. We did have a very strong first quarter, as
I indicated a good portion of that improvement came from increased CTC revenue
of about 15 cents a share. We do expect to see the CTC reset downward in June
and therefore we expect to give back most of that variance in the third and
fourth quarter of this year. So I think we can treat the 15 cents improvement in
CTC as simply as a timing difference and don't expect that to sustain during the
year. So as I walk through the guidance for full year 2003, as you will remember
we said that the exercise of the options out of some of the Midwest Generation
contracts will save us approximately a $130 million this year compared to 2002.
We are still on schedule for that. The after tax benefit of that should be about
25 cents a share positive. We also had told you to expect the Sithe investment
to be dilutive in 2003 by about 20 cents a share. We think it maybe slightly
conservative, but we still think that's' a good number to use for the year. We
had also indicated we will have 3 fewer nuclear plant refueling outages this
year than last. That will result in savings of about $60 million pretax or 11
cents a share. The net impact of increased pension and benefit expenses this
year should increase expense by about a $125 million or about 24 cents a share.
Again taking into account the results we expect from Enterprise we expect to do
that 10 percent a share improvement this year over the last. We continue to pay
down debt and re-finance debt and we are expecting to see an improvement in
earnings of about 13 cents a share this year from reduced interest expenses.
With modest growth in Energy Delivery sales, we expect to see another 5 to 10
cents in earnings pick up from that modest growth. And we do expect the
annualization of some of last year's cost management initiatives and some of the
early ramp up benefits in Exelon Way to help us absorb deflation this year. So
the items I just listed to you above add up to 20 to 25 cents of net positive
improvement over the last year and last years normalized number was $4.75. So
based on this factors we are still quiet comfortable with $4.80 to $5 range for
this year. As noted in the press release we do expect the second quarter result
to be between 21 percent and 23 percent of our full year earnings per share.
With that we'd like to now turn it over to the operator to handle Q&A.
- ---------------------------------------------
THE OPERATOR
The floor is now open for question.
4
(CALLER INSTRUCTIONS)
Paul Patterson of Glenrock Associates (phonetic).
- ---------------------------------------------
THE CALLER
I was wondering, if when you talk about your savings from the Exelon Way, is
that $200 million of cash O&M incremental to what your expenses will be in '03?
- ---------------------------------------------
COMPANY REPRESENTATIVE
It is.
- ---------------------------------------------
THE CALLER
And the second question I have for you, how much debt do you -- debt and debt
equivalents do you expect have by the end of '03 including and excluding the
stranded cost bond?
- ---------------------------------------------
COMPANY REPRESENTATIVE
Why do (indiscernible) Barry Mitchell, kindly answer that question.
- ---------------------------------------------
MR. BARRY MITCHELL
As John, indicated in his remark, we have done quite lot of refinancing but that
has been just that refinancing. So given the steady state I would expect debt to
remain about the same way, have about $15 billion debt, of which about 6 billion
represents transition bonds, couple billion at ComEd about 4 billion at PECO to
the extent that we realize the savings with respect to Exelon Way then one of
the key things we would be looking at is how we apply that cash to continue to
improve our balance sheet.
- ---------------------------------------------
THE CALLER
So Barry, you'll still pay down transition bonds this year, about 600 million,
other than that it's steady.
- ---------------------------------------------
MR. BARRY MITCHELL
Other than that it's steady until we start seeing benefits that might accrue
from Exelon Way.
- ---------------------------------------------
THE CALLER
And how much of that is short term or variable rate debt?
5
- ---------------------------------------------
COMPANY REPRESENTATIVE
Well those, are two different things. We have a nominal target for floating rate
which would include short-term debt of about 20 to 25 percent of total debt and
we are at probably at the lower end of that range right at the moment.
- ---------------------------------------------
THE CALLER
Thanks lot John.
- ---------------------------------------------
COMPANY REPRESENTATIVE
I would like to add one thing to that rather Barry will correct if I over state
this but I think I have it right, it is also the case with if things went as
normal and we simply accepted the Sithe put, we would be increasing the debt in
the corporate family by around $1billion and the present time we have made very
substantial progress towards an agreement to arrange for the sale of the Sithe
interest that means basically everything outside New England and that will avoid
that billion dollar increment to debt. Did I say that accurately?
- ---------------------------------------------
MR. BARRY MITCHELL
Yes.
- ---------------------------------------------
COMPANY REPRESENTATIVE
Barry agreed so that's the other good news on the balance sheet.
- ---------------------------------------------
THE OPERATOR
Steven Fleishman of Merrill Lynch. Please state your question.
- ---------------------------------------------
THE CALLER
Couple of question. First, it sounds like the big picture of Exelon Way is a way
to continue to grow earnings in cash flow through balance sheet given that the
M&A environment may not provide any opportunities for sometime. It seems like
there was comment tied in somewhat with the M&A environment?
- ---------------------------------------------
COMPANY REPRESENTATIVE
Well I don't know if it's the M&A environment, it's just we get more and more
convinced the finding one that you are really sure is going to be accretive is a
lot of work and you can't do it quickly and if you try to do it quickly you make
a mistake and we don't want to make a mistake and we have decided this, the most
probable way of adding value for all you folks, the short term is just go work
on things that we absolutely control and in this case it is our operations. So
we want to remind everybody that we are focusing on what we now have first, not
meant to be so
6
much a commentary on the current M&A environment compared to any other
environment it is meant to be a commentary on that fact that doing really good
acquisitions is always hard and that's not our first priority.
- ---------------------------------------------
THE CALLER
Great, agreed. Second question is with respect to CAPEX spending levels for 2003
and 2004, the number had been about 2 billion and I assume with Exelon Way for
2004 the will like a billion 8 -- billion 8.50?
- ---------------------------------------------
COMPANY REPRESENTATIVE
That's the idea.
- ---------------------------------------------
THE CALLER
And as I understand it that includes the money you are putting into the pension
fund, those numbers?
- ---------------------------------------------
COMPANY REPRESENTATIVE
Yes it does.
- ---------------------------------------------
THE CALLER
Okay that's great. And last specific question on the earnings. In the quarter,
it looked like you actually had a mark-to-market loss in the numbers. Can you
explain what that was?
- ---------------------------------------------
COMPANY REPRESENTATIVE
I will let Ian McLean explain it, but it's about 30 million I believe, and we
expect to recover it over the rest of the year.
- ---------------------------------------------
MR. IAN MCLEAN
We had a $31 million negative mark-to-market in the first quarter this year. We
had a $7 million positive mark-to-market in the first quarter of last year. So
the variance is actually 38 million negative year-over-year. Now over the 31
million mark-to-market this year that is primarily the majority of that is on
contracts that will expire before the end of the year. So most of that will
reverse itself before the end of this year.
- ---------------------------------------------
THE CALLER
One last question for Ian. I know in the quarter part of the upside of the
better priced power market was covered through -- the aggressive hedging you
have been doing. How does your hedging position look for kind of rest of this
year and next year relative to how it looked for Q4 and Q1 that we have seen?
7
- ---------------------------------------------
MR. IAN MCLEAN
Yes our sort of guideline for current year in which -- you know the current
financial year is somewhere around 80 to 95 percent hedged with 80 percent being
at the lower end of the range. I have to qualify that for you Steve because
being hedged moves the moment the load changes or the fuel prices change. It is
a range rather than a point okay. And given the change of plans -- sort of
change in wholesale power markets and creditworthy counter parties lack of
liquidity. It has been pretty difficult to get the hedges that we want to get
off in all the regions, we want to get off. We have tended to hedge more in PJM
than the other regions because we want to get to our target, and I would say
right now I don't know -- like we are 80 percent overall may be 85 percent.
- ---------------------------------------------
COMPANY REPRESENTATIVE
I think going forward we are fairly well hedged across the total portfolio for
the balance of the year, and we do see some uptick in wholesale power prices and
widening spark spreads in the market. We have reflected those in our current
guidance. So we don't have a big risk out there of unhedged power. Some of which
we have hedged at the current high prices.
- ---------------------------------------------
THE OPERATOR
Vick Gayden (ph) of Deutsche Asset Management (ph).
- ---------------------------------------------
THE CALLER
I guess you gave us a pretty ambitious or important goal about Exelon way. Would
you call this to be a stretch goal or a realistic goal, and what kind of
management incentives there might be to achieve those goals?
- ---------------------------------------------
COMPANY REPRESENTATIVE
I am not exactly sure Vick where we'll put the incentive. You can be sure that
target will not be lower than those goals. Whether we were between target
stretch -- we make these we haven't really got around to decide any
(indiscernible). They are going to be the core element of the plan so the
incentive system will be heavily tied to achieving them. I think we will make
them closer to target than stretch, but may be it will be somewhere between.
- ---------------------------------------------
THE CALLER
Putting it in another way. You said you did some benchmarking. How does that
compare with other best practices in this new effort?
- ---------------------------------------------
COMPANY REPRESENTATIVE
I would like Oliver to answer that.
- ---------------------------------------------
8
MR. OLIVER KINGSLEY
As an example with the consolidation of PECO and Commonwealth Edison right now
by a number of benchmarks in ComEd we are about mid fourth quarter, PECO is
about mere third quarter and that is by CAPEX, O&M and employees per customer.
So there are a number of things out there that we have looked at. We have looked
at our supply spend. I mentioned the 2 billion. We looked at a number of other
utilities, we have done this successfully. We are seeing what they have put in
and what they have been able to save. They have actually saved more than the 5
percent to 10 percent number that I mentioned. So we do have good benchmarks. We
looked extensively at IT, and we are going to take these support functions and
kind of put them back together. We started Exelon in a decentralized model. So
we've had some duplication creep in. We've done a great deal of work with the
benchmarks, and I am confident we will be able to do this, and we are also going
forwards to great deal on our productivity and doing more with less. So that is
a kind of quick synopsis of what this is all about.
- ---------------------------------------------
COMPANY REPRESENTATIVE
We have done some work that suggests that if could get delivery to top quartile,
that would produce in itself the whole Exelon Way target. We are not trying to
get all there because you can't be sure you are fully dealing with comparables,
and there may be a company or two in the top quartile who are getting there by
not doing the work as opposed to by doing it better. So we don't want to look
all in one place. But if you look at IT supply chain and delivery consolidation,
our benchmarking suggest that our goals are achievable, if we could get on the
whole two-thirds or three quarters of what the benchmarking suggest might be
available.
We are not going to cut any corners. We are going to do all essential
maintenance. As John spoke earlier, the dark days in '99 here in Chicago, we do
not intend to have that come back. So we have to focus on doing the right
maintenance and reliability and keeping the lights on as I spoke earlier. So it
is two guiding principles in this tremendous efficiency improvement
consolidation and also doing all required work.
- ---------------------------------------------
THE CALLER
This is very helpful, but if I could throw one last question that how much of
this savings could be retained and how much you have to share with your
customers?
- ---------------------------------------------
COMPANY REPRESENTATIVE
In the short run that means out through 2006, we essentially retain what we get.
Once you go beyond 2006, it depends on rate agreements not yet made.
- ---------------------------------------------
THE OPERATOR
Scott Peril (ph) of Credit Suisse First Boston.
- ---------------------------------------------
THE CALLER
I was wondering as it relates to ComEd and the summer peak there, if you could
just update us as to -- I know you have got out unhedged a bunch of the capacity
to replace the Edison Mission Energy contract. Have you basically hedged in all
of the gas with those peakers relative to expected load there, and I guess at
what point have you hedged in the gas?
9
- ---------------------------------------------
COMPANY REPRESENTATIVE
We hedged, I would say, nicely for the ComEd summer both from the fuel
standpoint and from a capacity standpoint and power price standpoint. So if it
was a blowout summer, I saw that (indiscernible) summer, it would be a little
bit painful, but only on the very sort of high on peak hours. We are pretty well
hedged all the way up just to high on peak hours. So there isn't really a huge
risk there for us. And on the gas side, we are in good shape. We really don't
run those peakers an awful lot. So we don't really have a lot of gas exposure,
but what we have got, we are hedged on based on our modeling of when they should
run.
- ---------------------------------------------
THE CALLER
And as far as the increase in spark spreads and in power prices that we are
seeing and that you updated in your new guidance. How does that sort of make its
way into the guidance?
- ---------------------------------------------
COMPANY REPRESENTATIVE
It will make its way into the guidance --.
- ---------------------------------------------
THE CALLER
As far as the list that Bob went through, sort of the line items, is that
embedded within -- in the customer growth line, as far as sort of
year-over-year?
- ---------------------------------------------
COMPANY REPRESENTATIVE
To this point in the year, I think it is probably been offset for net because
that is where we though we'd be. If wholesale prices -- if you tell me wholesale
prices -- if you tell me that wholesale prices spark spreads will be higher and
sustained for the rest of the year. There's an up side to our budget, but in
terms of so far this year I think we have made into (indiscernible) we thought
- --
- ---------------------------------------------
THE OPERATOR
Andrea Finsbein (ph) of Angelo Gordon.
- ---------------------------------------------
THE CALLER
I just have a couple of questions regarding the FAS 143 change can you just
detail for it how much do you decommissioning expense you had been recognizing
annually?
- ---------------------------------------------
10
COMPANY REPRESENTATIVE
About 120 million.
- ---------------------------------------------
THE CALLER
120 is that pretax or after tax.
- ---------------------------------------------
COMPANY REPRESENTATIVE
Pre.
- ---------------------------------------------
THE CALLER
Okay and can you remind us also of the step up you had previously been expecting
based on what your initial read of FAS 143 was?
- ---------------------------------------------
COMPANY REPRESENTATIVE
We expected a step up of 7 cents a share in earnings.
Are you not talking about the step up to equity?
- ---------------------------------------------
THE CALLER
Yes -- you had expected a 1. 9 million step up to equity?
- ---------------------------------------------
COMPANY REPRESENTATIVE
Yes that is correct.
- ---------------------------------------------
THE CALLER
Okay and then the 7 -- and the 7 cents that you are no longer going to be
recognizing because of the way that you currently are interpreting FAS 143. I
just want to understand a comment that you made with regard to recognizing
decommissioning expense in general. Are you not going to be recognizing
decommission expense at all now on your income statement?
- ---------------------------------------------
COMPANY REPRESENTATIVE
That is -- we recognize it but it is in essence P&L neutral.
11
- ---------------------------------------------
THE CALLER
Okay whereas previously it was not P&L neutral. So should not we be looking at a
net benefit to P&L based on the elimination of this expense?
- ---------------------------------------------
COMPANY REPRESENTATIVE
And with respect to the guidance that we have given before?
- ---------------------------------------------
THE CALLER
Yes.
- ---------------------------------------------
COMPANY REPRESENTATIVE
My colleagues are confirming so I will try to answer while they come up with
real answer. I believe that Bob said in his opening remarks this is about a 7
cent up side for this year and as he pointed out there are number of upside
pieces and downside pieces. So that is how we see it as working for this year
and I am hoping Bob and Matt will finish their conference their and help you
with that answer shortly.
Bob you are absolutely right 7 cents is the upside relative to what we had
thought as we said Enterprises incurred a little bit of an unexpected downside
in the first quarter and it is pretty much an offset we think it could be a
little more.
I think we got the answer to question. (indiscernible) the 7 cents bad guy we
thought we were going to get is offset but what she was asking me as there was a
120 remaining of the cash flow (indiscernible)
- ---------------------------------------------
THE CALLER
Yes exactly.
- ---------------------------------------------
COMPANY REPRESENTATIVE
And now there is nothing. There should be big upside and the fact is the full
120 never got the to the bottomline.
There was offset by gains to the trust assets as well so that -- what we were
talking about before was our net expense of about $7 million. Now we are talking
about P&L neutral so there was never any anticipation of having a huge upside
before.
- ---------------------------------------------
THE OPERATOR
Zack Schriber (ph) of (indiscernible) Capital.
- ---------------------------------------------
12
THE CALLER
Congratulations on the great quarter. I was just wondering if you could sort of
I was going through my notes here from your last conference call and on your
last conference call embedded in your guidance was PJM power prices at around
$25 and 50 cents per MWh. Main at around $22 and 50 cents. Nepool at around 34
with Henry Hub gas around $3 75 cents for $8 per MWh spark spreads. Was
wondering if you can just update us as to where you see those sort of similar
benchmarks now when we look at Bloomberg it is tough to kind of make it
apples-to-apples as Bloomberg only gives peak prices and although you have
hedged we could just look at what is embedded in the business from structural
going forward perspective.
- ---------------------------------------------
COMPANY REPRESENTATIVE
Well first of all let me congratulate you on your memory. And I think in PJM we
had a $25 and 50 cents and our current plan we have $42 and 50 cents.
I think ComEd we had $22 and 50 cents we currently have 28 and in Nepool we had
$33 and 50 cents we currently have 51. But keep in mind the fuel prices of other
than our base prices also went up. So don't get carried away with the thoughts
automatically it means some huge upside. I mean it means some upside but it's
not as big as just the strict power price moves if the fuel prices go up.
Let me add to that (inaudible). It won't surprise you with the kinds of topic
(indiscernible) discussion between Ian and Bob and Oliver and I. Because Ian and
his colleagues try to hedge over 90 days to 9 months period, their key objective
is to suppress earning volatility and that helped us a bunch at various points
last year when the prices were going down, the corollary is we don't get quite
as much advantage when the prices come back up as we would have, had we been in
an unhedged position. Nonetheless, as Ian said there is some room for benefit if
those price improvements continue.
- ---------------------------------------------
THE CALLER
I guess that I thinking about more, John, (indiscernible)is more for 2004. I
mean obviously all investors begged you guys to hedge last year when prices were
low. You run the business in the long term to your point that's because some
money to be taken off the table in the short-term but structurally if this kind
of situations sustain itself, what kind of upside in a year-over-year are we
looking at for '04? And I guess that the question is really where we did we kind
of hedge things at in '03 what the implications are that for '04? And to Ian's
question about liquidity, can we from the liquidity perspective even realize and
capture the kinds of prices that people see on their Bloomberg screens or are
they really invisible when you sit in the driver's seat?
- ---------------------------------------------
MR. JOHN ROWE
(inaudible) when it comes to looking in future prices so. Go ahead Ian.
- ---------------------------------------------
MR. IAN MCLEAN
Yes. I think first of all we do have some '04 hedge but it's relatively small on
the books and so we would -- our focus is a book that benefits greatly if cash
prices are high and what would be really nice is if oil prices were also low
because that's the kind of machines we've got. We have good base load machines,
we have a lot of oil machines and we have some of the gas machines. So 2003 was
planned as better year than 2002 because we saw the upside in the prices and
2004 given where the prices are now, we definitely see a benefit in that. And if
the prices stayed where they currently are but I don't think I want to give a
number on that right now because they are so many moving parts
13
- -- the biggest being that if the prices move our load shifts enormously and also
affects our earnings a great deal but I would say, I'd be optimistic next year
but more than that I wouldn't want to say anything else.
- ---------------------------------------------
COMPANY REPRESENTATIVE
(indiscernible) We don't have a lot of hedges this year.
We have some but it's not huge.
- ---------------------------------------------
THE CALLER
And then on the sort of liquidity question, is there anything that practically
precludes you from a liquidity perspective in going out and kind of starting to
layer in hedges for '04?
- ---------------------------------------------
COMPANY REPRESENTATIVE
Yes. Obviously when you look in the various regions. If you look in Nepool they
really aren't very many customers that are interested in buying. There are some
and we're looking for them but they way the legislation is set up, you can only
basically do a six month deal with a regulated supplier so that precludes it
there. Texas is similar although it is a little easier and ComEd is a very very
narrow market. There is almost nothing out there today and PJM is the market we
tend to focus on because there is liquidity. Now we can do other things with
fuels in terms of hedging and are looking -- we do that whenever we can but
there is such a big market-to-market impact on fuels that it's a very dangerous
thing for us to do because the earnings get whip sawed all over the place. I
mean theoretically you could sell gas against nuclear plants and say, "hey I'm
locked in -- lock in that margin" but we whipped sawed (ph) to death on the
market-to-market. We don't like that on an earnings point of view but we are
looking at every possibility we can right now to lock in these type margins to
our 80 percent at least.
- ---------------------------------------------
THE CALLER
And when do you expect to that 80 percent?
- ---------------------------------------------
COMPANY REPRESENTATIVE
I just -- I can't tell you. I mean customers don't like to buy when prices are
high, so it's a very very difficult job for us to get there right now.
- ---------------------------------------------
THE CALLER
And the final question is just on size and on Nepool. As I look at your
guidance, your guidance seems to imply an $8 spark spread on our 14 million
megawatts hours on a full year basis, coming at the 2,400 megawatts for the new
build plants that I look at Bloomberg spark spreads at least appear to be around
$16, $17, $18 per megawatt hour. Are those Bloomberg prices indicative of what
you are seeing? Bob, and is that kind of what you were alluding to in terms of
less negativity, potentially than the 20 cents?
- ---------------------------------------------
14
COMPANY REPRESENTATIVE
Yes, I mean basically Bloomberg's right. The prices are, the spark spreads were
I would say only 14 to 16. But again it's very difficult to lock them in, that's
the first issue. And yes, we do have some up side there.
It's possible our 20 cents, the dilution is little bit conservative.
- ---------------------------------------------
THE CALLER
Is that 20 cents is for full annualized basis or half year?
- ---------------------------------------------
COMPANY REPRESENTATIVE
20 cents was full annualized basis.
- ---------------------------------------------
THE OPERATOR
J. Dobson of Deutsche Bank.
- ---------------------------------------------
THE CALLER
I was wondering Oliver if you could talk a little bit about what the cost to
achieve might be for the Exelon Way as you sort of laid out the numbers, and if
it's not too much trouble, I wouldn't mind if you went through some of that with
me again of the actual numbers. Just to confirm I got them right. And then my
last question totally unrelated would be just to this 2007 issue and just again
I know Bob you have talked to a lot of people about this but sort of your latest
thoughts on sort of managing that issues and I guess that same question to John.
- ---------------------------------------------
COMPANY REPRESENTATIVE
Well, let me reiterate some of the numbers again. In 2004, our goal is 150
million in CAPEX and 200 million in O&M resulting in an after tax increase free
cash flow of 270 million. We have broken this down by business unit. In CAPEX,
60 percent will come from energy delivery, 40 percent will come from Genco and
corporate. On the O&M side, we see about half of that reduction coming out of
energy delivery, quarter out of Genco, and remainder out of corporate and other
units that we have. In '05, '06 we are going to step that up total saving of 600
million. And I have also got this broken down and it about the same percentages
in the '06 time period between energy delivery, Genco, and corporate. We also
have this benchmark laid out by plan for supply at the support functions
consolidations so we got this tied down. Now, on a cost to achieve, we've got
numbers for that but I am not going throw that out because we don't look at
every aspect of cost reduction that involves labor, but I don't want to have
this call saying that we are going to lay off. We will have headcount
reductions, but I am not going to -- we are not going to put a number on that
until we get closer to actual implementation of the plans. And I would say
probably a good round number is around 125 million in '03 and somewhere around
75 on the '04 and '05, but we just don't have detailed plans. It is not going to
cost us anything from our supply cost reduction, cost to achieve, and other
things. We are going to look at every aspect of our total span to make these
reductions. I hope that is responsive to you question.
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15
THE CALLER
Yes it is. Just as a follow up to that before you get to the other one. So, I
should think of the sort of 270 net and free cash flow being offset by some of
these costs to achieve in '03?
- ---------------------------------------------
COMPANY REPRESENTATIVE
That's correct.
- ---------------------------------------------
THE CALLER
And then just the '07 question.
- ---------------------------------------------
COMPANY REPRESENTATIVE
On the '07 -- what Exelon Way would do for us is strengthen our balance sheet to
give us more cash flow. Our goal is by the time we have to deal with the
transition issue, if we can improve cash flow by 300 million a year next year,
600 million a year thereafter, and if we can be successful in some of these
asset sales, we can substantially strengthen our balance sheet and pay down our
debts and have much stronger balance sheet now. If we have a stronger balance
sheet, we'll be in a position by '07. If we've not worked out any other deals
and John will talk about all the possible outcomes of income there. If nothing
else happens, we'll be in a position by '07 where we can be in a position to
buyback capital and absorb the reduction in revenues resultant loss of the CTC.
So we give ourselves the financial strength to solve this thing financially if
we don't solve it operationally. So with the additional revenues from Exelon
Way, additional cash flows, and some of these asset sales like enterprise sales,
like avoiding the acquisition of Sithe, we can substantially improve our balance
sheet and give us a flexibility to do whatever we need to do.
As you know, I've been working on 2007 since 1998, that's partly why we did the
ComEd fossil sale it's a big part of why we merged ComEd and PECO. It's a big
part of why we accepted the two-year rate freeze extension that was proposed by
CUB early last year. It's another part of the reason why we made the settlement
in the ComEd rate case this year, and we've got a lot of different things in
mind for 2007 which have to do with the fact that Illinois legislators like
legislators in most other states want to have the small and medium sized
customers benefit from regulated service as well as competitive alternatives,
and I think a time will come in the next several years when we will be able to
negotiate sensible and attractive terms for supplying those customers who still
want the bundled rate after 2007. But we're trying not to wait for that and if
you look at our previously announced estimates of what the transition charge
would be in 2007, which is a loss of 250-300 million of revenue, you'll find
that the Exelon Way in themselves compensate for that loss of revenue. So, if we
can use Exelon Way to make up for the lost CTC charge and negotiate a deal that
allows us to continue to supply most of the customers with a fairly priced
bundled rate product, we will have offset the 2007 profits, and what Bob is
suggesting is it also creates various financial restructuring opportunities that
will allow us to continue to grow our earnings per share. So, this is all part
of an effort to allow us to solve that issue going forward internally if we can.
Life management is always managing both internal opportunities and external
forces and I'm sure my life will stay complex as will the lives of other CEOs
but I believe this is a very large step forward dealing with that issue.
- ---------------------------------------------
THE CALLER
That's great, thanks so much.
- ---------------------------------------------
16
THE OPERATOR
Thank you.
- ---------------------------------------------
COMPANY REPRESENTATIVE
Well, we were probably almost out of time.
Maybe one quick question?
- ---------------------------------------------
THE OPERATOR
Paul Fremont of Jeffries. Please state your question.
- ---------------------------------------------
THE CALLER
Thank you. I guess you characterize the '07 issue really in terms of the CTC and
the CTC revenue, do you see any issues as far as the T&D rate resets would be
concerned and what type of action do you see as being possible in addressing T&D
rates, and then one other quick question would be can you give us any type of an
update on Limerick and the anticipated return to service date of Limerick?
- ---------------------------------------------
COMPANY REPRESENTATIVE
I will handle the first part, Oliver will handle the Limerick. I believe that
the rate agreements Pam Strobel and Frank Clark talked about a month ago, if the
commission approves, put the T&D rate framework in very good position for 2007.
That does not mean that we might not ask for or need another increase out there.
It does mean that it would be an increase that is kind of a normal utility T&D
increase and not having to catch up on all the stuff that we got included in
this recent field. When I say the 2007 issue involves the CTC revenue, I
certainly mean that the transition charge is a definable amount of money it
floats which it is not absolutely nailed down but you can define it. And the
transition charges will almost surely end in 2007 . But there is another
component that I keep talking about, which is the earnings we get on the bundled
rate, and that remains to be negotiated for that period and again as I said,
because legislators, because regulators know that the bundled rate backed up by
a company with real power plants and not a broker is very important to customers
in this post-California, post-Enron world, I am quite confident that we will
work something reasonable out but I can't tell you when that would be. Oliver do
you want to deal -- ?
On Limerick, Limerick did trip last week. It came back on on Saturday. This unit
was down is now at full power 100 percent. We have all of our nuclear units on
line expect Braidwood 1 is down for refueling and it should be back within next
week.
If anyone has follow up questions Investor relations will be happy to take your
call. Thank you.
- ---------------------------------------------
THE OPERATOR
This does conclude today's teleconference. You may disconnect the lines at this
time and have a wonderful day.
(CONFERENCE CALL CONCLUDED)
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17
Exhibit 99.3
[EXELON LOGO]
- --------------------------------------------------------------------------------
News Release
From: Exelon Corporation For Immediate Release
Corporate Communications April 29, 2003
P.O. Box 805379 Chicago, IL 60680-5379
Contact: Don Kirchoffner, 312.394.3001
Linda Marsicano, 312.394.3099
"The Exelon Way" Business Model Approved
Senior Management Appointments Include Oliver D. Kingsley, Jr. to President and
Chief Operating Officer, Exelon Corporation; Pamela B. Strobel, Executive Vice
President, to Chief Administrative Officer, Exelon Corporation; Kenneth G.
Lawrence to Chairman, PECO; Michael B. Bemis to President, Exelon Energy
Delivery; Frank M. Clark Continues as President, ComEd; Denis P. O'Brien to
President, PECO; John F. Young to President, Exelon Power
Chicago (April 29, 2003) - Exelon Corporation today laid out its aggressive, all
encompassing effort to become the best and most consistently profitable
electricity and gas company in the United States. "The Exelon Way" will enable
Exelon to meet its service and financial commitments while improving its cash
flow by $300 - $600 million in cash savings annually.
Major components of The Exelon Way are:
o Aggressively pursuing sustainable cash flow improvement by integrating
and centralizing key functions; consolidating and aligning key
business areas; and standardizing and simplifying key processes.
o Rapidly creating a high-performance organization and culture of
excellence by reinforcing accountability at all levels; accelerating
the capacity for change; and emphasizing leadership development.
"The merger of Unicom and PECO has been highly successful and synergies have far
exceeded expectations," says Rowe. "The Exelon Way is the next step in the
evolution of Exelon and keeps the company moving forward to reach its full
potential."
Rowe stressed that transitions that occur while implementing The Exelon Way will
be seamless to customers. "The Exelon Way will enhance our business, not
compromise it," says Rowe. "There will be no deterioration in safety, service,
quality or reliability."
As part of this effort, major Exelon operating units - Generation (Nuclear,
Power, Power Team) and Energy Delivery -- will now report to Oliver D. Kingsley,
Jr., who has been appointed President and Chief Operating Officer of Exelon
Corporation. Kingsley as COO will lead the integration of critical functions and
the implementation of standards, processes, and discipline to ensure that all
Exelon operating units meet operational and functional performance commitments.
The appointment of Kingsley as COO positions the company to achieve streamlined
operations, simplify and standardize processes, and maximize efficiencies.
"We are taking the best operator I have ever known and giving him the ball to
run with," says Rowe.
Kingsley was most recently Senior Executive Vice President, Exelon Corporation.
In that role he was responsible for overseeing the operations of Exelon Nuclear,
Exelon Power, the Business Services Company and Exelon Enterprises. He also led
the successful Cost Management Initiative that for the full year 2002 achieved
$340 million of sustainable savings relative to Exelon's original 2002 financial
plan.
Another appointment driven by The Exelon Way initiative is that of Pamela B.
Strobel, Executive Vice President, to Chief Administrative Officer, Exelon
Corporation. Strobel will direct Business Services Company, Enterprises,
Communications, and will also serve as Chair of the Exelon Corporate Strategy
Committee. In that role she will facilitate, together with Randall Mehrberg,
Exelon's Executive Vice President and General Counsel who leads the Corporate
Development and Corporate Strategy group, the strategic direction of the
corporation and chair the principal internal forum for assessment of major
issues and strategic opportunities. Strobel will also maximize the value of
Enterprises through continued execution of its "Path to Value" strategy going
forward. Strobel joined ComEd in 1993 as General Counsel and most recently
served as President and CEO, Exelon Energy Delivery. In 2002 under Strobel's
leadership, Energy Delivery continued to dramatically improve its reliability
and performance, resulting in all-time highs in customer satisfaction.
"Pam is one of Exelon's most thoughtful and versatile officers," says Rowe. "The
company will greatly benefit from the many strengths she will bring to this
position."
A key component of The Exelon Way is also maintaining the very strong regional
presence that ComEd and PECO enjoy today, while combining the companies into one
functional energy delivery unit. The companies will still be led by regional
presidents to ensure continued line presence. However, consolidation of
functions will result in significant efficiencies, process improvements and
create value by lowering operating costs.
Rowe also announced the following senior management appointments:
Kenneth G. Lawrence, Chairman, PECO
o Kenneth G. Lawrence, a 34-year veteran of PECO Energy, has been
appointed to the position of Chairman of PECO effective May 5 and
recently announced a retirement date of November 1, 2003. During his
remaining tenure, Lawrence will provide advice and counsel to Exelon
senior management. He will also work with community leaders to
underscore the depth of Exelon's continuing presence and commitment in
the Philadelphia region.
"Ken has been the leader of PECO in the Philadelphia region," says Rowe. "We
will miss him but will take full advantage of his vast knowledge and experience
during this transition period."
Page 2
Michael B. Bemis, President, Exelon Energy Delivery
o Michael B. Bemis is appointed President of Exelon Energy Delivery. As
a major component of The Exelon Way, Bemis will focus on Energy
Delivery's consolidation, which will achieve continued operating
efficiencies, synergies and economies of scale. Bemis will also
provide leadership to the Presidents of ComEd and PECO in ensuring
performance that meets customer expectations for reliability and
service. His principal office will be in Philadelphia. Bemis joined
Exelon in August 2002 as President of Exelon Power where he oversaw
the company's fossil, landfill gas and hydroelectric fleet of
generating assets. Bemis has more than 20 years experience in the
energy industry, much of it in electric distribution. Prior to joining
Exelon, Bemis was with Entergy where he served as CEO for London
Electricity PLC and as the Executive Vice President of Entergy's
International Operations. In addition, he was Executive Vice President
for Entergy Customer/Retail Services, President and COO of Louisiana
Power & Light, and Executive Vice President of Arkansas Power & Light.
Prior to joining Entergy, Bemis was a partner with Deloitte & Touche
where he specialized in services for the electric utility industry.
"Mike has broad experience and a solid track record in consolidating and
improving the cost and reliability of delivery operations," says Kingsley.
Denis P. O'Brien, President, PECO
o Denis P. O'Brien will succeed Lawrence as President, PECO Energy.
O'Brien has been Executive Vice President for PECO since November 2002
where he has been responsible for all day-to-day company-wide
operations, including customer service and support functions. With a
more than 20-year history at PECO, O'Brien has served as Vice
President of Operations, Director of Operations for the BucksMont
Region and Director of Transmission and Substations.
"Denis's extensive experience in PECO has prepared him well for this step,"
notes Kingsley. "We have a great deal of confidence in his abilities."
Frank M. Clark, President, ComEd
o Frank M. Clark will continue in his role as President of ComEd, where
he is responsible for overseeing the day-to-day operations of the
company. Prior to Clark's appointment as President of ComEd, he served
as Executive Vice President responsible for various functions
including: Customer Service Operations; Marketing and Sales;
Regulatory, Governmental and Community Affairs; Information
Technology; Communications; Human Resources; Labor Relations; and
Distribution Services. Since joining ComEd in 1966, he has held
various positions in both corporate support and line functions.
Page 3
John F. Young, President, Exelon Power
o John F. Young will head Exelon Power as its President. Young will
direct fossil and hydro operations and take a leadership role in
generation portfolio optimization and developing and executing
generation strategy in key Exelon market regions. Most recently Exelon
Power's Chief Operating Officer, Young came to Exelon Power from
Sierra Pacific Resources Corporation, where he was responsible for the
operation of the company's fossil and hydro facilities, and heavily
involved in developing trading and generation strategies. Prior to
that, he was Executive Vice President of Southern Company Generation.
All senior management appointments are effective May 5, 2003.
This more integrated business model embraces Exelon's "One Company, One Vision"
and enables a singular approach for managing operating processes and support. It
is also the next step in the development of Exelon's culture of excellence and
continuous improvement.
###
Exelon Corporation is one of the nation's largest electric utilities with
approximately 5 million customers and more than $15 billion in annual
revenues. The company has one of the industry's largest portfolios of
electricity generation capacity, with a nationwide reach and strong positions
in the Midwest and Mid-Atlantic. Exelon distributes electricity to
approximately 5 million customers in Illinois and Pennsylvania and gas to more
than 440,000 customers in the Philadelphia area. Exelon is headquartered in
Chicago and trades on the NYSE under the ticker EXC.
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