EXC

Exelon Corporation 10-Q Summary: Period Ended June 30, 2003

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended June 30, 2003, for Exelon Corporation and its primary 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 (power production and marketing), and Enterprises (competitive energy services and infrastructure). The filing includes unaudited consolidated financial statements and management discussion and analysis.

Key Financial Metrics (Six Months Ended June 30, 2003)

Note: Net Income for 2003 includes a $112 million benefit from the cumulative effect of adopting SFAS No. 143. Net Income for 2002 includes a $230 million charge from the cumulative effect of adopting SFAS No. 142.

Material Changes vs. Prior Period

• Revenue Growth: Operating revenues increased 13% year-over-year, driven by higher market sales in the Generation segment and increased gas sales at PECO due to colder winter weather.
• Profitability: Net income increased 49% primarily due to the $112 million accounting benefit from SFAS No. 143 adoption. Excluding this, income before cumulative effects decreased 14% due to impairments and weather impacts.
• Impairments: Significant non-cash charges included a $200 million impairment of Generation's investment in Sithe Energies, Inc., and a $47 million goodwill impairment related to the InfraSource business unit.
• Accounting Changes: Adoption of SFAS No. 143 (Asset Retirement Obligations) resulted in a net income benefit of $112 million and a reduction in decommissioning liabilities. Adoption of SFAS No. 150 required reclassification of certain preferred securities as liabilities.
• Weather Impact: Energy Delivery revenues were negatively impacted by cooler spring weather, while PECO gas revenues benefited from colder winter weather.

Guidance, Outlook, and Risks

• EBG Project Distress: Exelon Boston Generating (EBG) projects (Mystic 8/9 and Fore River) failed to meet "Project Completion" deadlines. Exelon has initiated an orderly exit from ownership and expects to incur an impairment of approximately $550 million (after-tax) on EBG-related assets.
• Sithe Consolidation: Under FIN No. 46, Generation may be required to consolidate Sithe Energies, Inc. (49.9% owned) as of July 1, 2003, which would significantly alter the balance sheet.
• Cost Reduction Initiative: Management is implementing "The Exelon Way" to achieve $300 million in annual cash savings by 2004 and $600 million by 2006, though associated restructuring costs are expected in 2003-2005.
• Regulatory Risks: Ongoing proceedings regarding ComEd's delivery services rates and PECO's market share thresholds for customer choice. Potential state income tax increases are noted as a risk.
• Counterparty Risk: Credit exposure to Dynegy (downgraded to below investment grade) and Midwest Generation (downgraded) poses potential risks to financial swap assets and coal purchase contracts.

Investor Verification Checklist

• EBG Impairment Timing: Verify the final timing and magnitude of the expected $550 million impairment related to the Exelon Boston Generating exit.
• Sithe Consolidation Impact: Confirm the final determination on whether Sithe Energies will be consolidated under FIN No. 46 and the resulting impact on debt and equity ratios.
• InfraSource Sale: Monitor the closing of the InfraSource sale (expected Q3/Q4 2003) and the realization of the projected $211 million net cash proceeds.
• Weather Normalization: Assess the sensitivity of Energy Delivery earnings to weather variations, given the significant variance in cooling and heating degree days reported.
• Debt Refinancing: Review the impact of recent debt issuances and refinancing activities on future interest expense and liquidity coverage ratios.