Exelon Corporation 10-Q Summary: Quarter Ended June 30, 2001
Business Context and Reporting Period
This Form 10-Q covers the three and six months ended June 30, 2001, for Exelon Corporation and its principal subsidiaries, Commonwealth Edison Company (ComEd) and PECO Energy Company (PECO). The filing reflects the post-merger structure following the October 2000 combination of PECO and Unicom (parent of ComEd). A significant corporate restructuring occurred effective January 1, 2001, separating generation and competitive businesses from regulated energy delivery operations. Exelon now operates through three segments: Energy Delivery (ComEd and PECO), Generation, and Enterprises.
Key Financial Metrics (Six Months Ended June 30, 2001)
| Metric | Exelon Corp (2001) | Exelon Corp (2000) | ComEd (2001) | PECO (2001) |
|---|---|---|---|---|
| Operating Revenues | $7,474 million | $2,738 million | $2,976 million | $1,957 million |
| Net Income | $714 million | $308 million | $329 million | $207 million |
| Diluted EPS | $2.21 | $1.72 | N/A | N/A |
| Operating Cash Flow | $1,889 million | $334 million | $998 million | $321 million |
| Total Assets | $35,359 million | N/A | $16,628 million | $10,841 million |
| Long-Term Debt | $13,850 million | N/A | $6,724 million | $5,606 million |
| Cash & Equivalents | $1,160 million | N/A | $466 million | $26 million |
Note: 2000 comparative data for Exelon is limited to the period prior to the October 2000 merger for PECO only, unless pro forma adjustments are specified in the text.
Material Changes vs. Prior Period
- Revenue Growth: Exelon's operating revenues increased 173% year-over-year (from $2.7B to $7.5B) primarily due to the inclusion of ComEd's results following the merger. On a pro forma basis, growth was driven by higher customer retention and rate adjustments at PECO and increased transmission revenues at ComEd.
- Profitability: Net income rose 132% to $714 million. Earnings Before Interest and Taxes (EBIT) increased to $1.76 billion, driven by strong performance in the Generation segment (higher wholesale margins) and Energy Delivery (lower O&M costs and favorable regulatory rulings).
- Restructuring Impact: The January 2001 restructuring transferred generation assets to Exelon Generation, LLC. This significantly altered the balance sheets of ComEd and PECO, reducing their assets and liabilities while shifting operational focus to regulated delivery.
- Accounting Changes: Adoption of SFAS No. 133 (Derivatives) resulted in a $12 million net gain in earnings and a $44 million deferral to equity. A change in accounting estimates for asset lives increased net income by $21 million.
Guidance, Outlook, and Risks
Management Commentary: Management highlights improved operational efficiency, particularly in storm restoration and billing processes at ComEd. The Generation segment benefited from high wholesale market prices and strong nuclear capacity factors (96.2% for six months). The Enterprises segment saw revenue growth from acquisitions, though margins were pressured by the telecommunications downturn.
Outlook: Exelon expects to continue managing commodity price risks through derivatives. The company is evaluating the impact of new accounting standards (SFAS 142 on Goodwill and SFAS 143 on Asset Retirement Obligations), which may materially affect future financial statements upon adoption in 2002 and 2003.
Risks and Contingencies:
- Legal Proceedings: Significant litigation includes the Cotter Corporation environmental cases (recent $16M verdict, subject to appeal), the Cajun Electric Power Cooperative breach of contract claim ($50M sought), and the Godley Park District water contamination suit ($100M punitive damages sought).
- Regulatory: Pending Illinois Commerce Commission (ICC) orders regarding ComEd's decommissioning cost recovery and new rate filings. PECO faces ongoing tax appeals regarding nuclear facility valuations.
- Environmental: Accrued liabilities for environmental remediation (MGP sites) total $168 million for Exelon, with potential for additional costs.
Investor Verification Checklist
- Merger Integration: Verify the extent to which reported growth is organic versus the result of the Unicom/PECO merger and subsequent restructuring.
- Regulatory Recoveries: Monitor the status of the ICC appeal regarding ComEd's nuclear decommissioning cost recovery ($73M annual cap) and the outcome of PECO's Competitive Transition Charge (CTC) amortization.
- Legal Exposure: Assess the potential financial impact of the Cotter Corporation verdicts and the Cajun Electric lawsuit, noting that indemnification responsibilities have been transferred to Generation.
- Debt Structure: Review the composition of long-term debt, specifically the $7.2 billion in securitization debt and the impact of recent refinancing activities on interest expense.
- Accounting Standards: Evaluate the potential impact of SFAS 142 (elimination of goodwill amortization) on future earnings per share starting in 2002.