EXC

Exelon Corp. Q1 2004 Filing Summary

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended March 31, 2004, for Exelon Corporation and its subsidiaries: Commonwealth Edison Company (ComEd), PECO Energy Company (PECO), and Exelon Generation Company, LLC (Generation). Exelon operates in three segments: Energy Delivery (regulated utilities), Generation (wholesale power and marketing), and Enterprises (energy services and infrastructure). The filing reflects significant accounting changes, including the consolidation of Sithe Energies, Inc. (Sithe) under FIN No. 46-R and the adoption of EITF 03-11 regarding derivative reporting.

Key Financial Metrics (Consolidated Exelon)

Material Changes vs. Prior Period

• Revenue Decline: Operating revenues decreased 8.6% primarily due to the adoption of EITF 03-11 (which netted certain power transactions, reducing reported revenue by $213 million), decreased competitive transition charge collections, and the sale of InfraSource businesses.
• Profitability Increase: Net income increased 12.5% despite lower operating income. This was driven by a $32 million after-tax gain from the consolidation of Sithe (FIN No. 46-R) and a lower effective tax rate (28% vs. 37%) due to synthetic fuel investments. The prior year included a $200 million impairment charge related to Sithe.
• Segment Performance:
  • Energy Delivery: Net income declined 5.5% due to lower revenues from customer choice and unfavorable weather, partially offset by lower operating expenses.
  • Generation: Net income increased 76.8% due to the absence of the prior year's impairment charge, the acquisition of AmerGen, and improved margins.
  • Enterprises: Net loss narrowed slightly as the segment continues to divest non-core assets.
• Accounting Changes: The filing includes a $32 million cumulative effect of accounting change for Sithe consolidation. The prior year included a $112 million gain from the adoption of SFAS No. 143.

Outlook, Risks, and Contingencies

• Boston Generating Sale: Exelon reached a settlement to sell Boston Generating (Mystic and Fore River facilities) to lenders. Assets and liabilities ($1.3 billion) are classified as "held for sale." The transaction is expected to close in Q2 2004.
• Regulatory Integration: ComEd received FERC approval to fully integrate its transmission assets into PJM Interconnection, effective May 1, 2004. This is expected to incur approximately $30 million in annual administrative fees but provide access to competitive wholesale markets.
• Divestitures: Exelon continues to divest Enterprises assets, including an agreement to sell PECO TelCove for $49 million and the Chicago thermal business for approximately $135 million.
• Legal and Environmental: Significant litigation includes real estate tax appeals for nuclear plants and environmental remediation costs (MGP sites). Exelon has accrued $126 million for environmental liabilities. There is also credit risk exposure to Dynegy related to Sithe's Independence plant, with a potential impairment risk of up to $50 million after-tax if Dynegy defaults.
• Stock Split: A 2-for-1 stock split was approved with a distribution date of May 5, 2004. Financial statements do not yet reflect the split.

Investor Verification Checklist

• Verify the closing status and financial impact of the Boston Generating sale to lenders.
• Monitor the impact of ComEd's full integration into PJM on operating costs and market access.
• Assess the credit risk exposure to Dynegy and the potential impairment of the Sithe financial swap asset ($156 million recorded asset).
• Review the progress of the Enterprises divestiture strategy (PECO TelCove, Thermal, Exelon Services) and associated proceeds.
• Confirm the status of the IRS audit regarding the 1999 fossil plant sale tax deferral ($1.1 billion liability).
• Track the nuclear fleet capacity factor, specifically regarding the Quad Cities units operating below Extended Power Uprate levels.