EXC

Exelon Corporation 10-Q Summary: Quarter Ended March 31, 2001

Business Context and Reporting Period

This Form 10-Q covers the three months ended March 31, 2001, for Exelon Corporation and its principal subsidiaries, Commonwealth Edison Company (ComEd) and PECO Energy Company (PECO). The filing reflects the post-merger integration of PECO and Unicom (parent of ComEd), completed on October 20, 2000. A significant corporate restructuring occurred effective January 1, 2001, separating generation and competitive businesses from regulated energy delivery operations. Exelon now operates in three segments: Energy Delivery, Generation, and Enterprises.

Key Financial Metrics (Exelon Consolidated)

Segment Performance (EBIT): Energy Delivery ($682M), Generation ($293M), and Enterprises (-$31M). Total EBIT was $941 million.

Material Changes vs. Prior Period

• Revenue Growth: Consolidated revenues increased 182% to $3.823 billion, driven primarily by the inclusion of ComEd's results following the merger and increased PECO electric and gas revenues.
• Profitability: Net income rose 109% to $399 million. Earnings per share (diluted) increased 18% to $1.23. The increase in net income was partially offset by a higher share count due to the merger.
• Restructuring Impact: The January 2001 restructuring transferred generation assets to a new subsidiary (Exelon Generation). This significantly altered the cost basis and operating structure for ComEd and PECO, reducing their reported assets and liabilities while shifting generation-related revenues and expenses to the Generation segment.
• Accounting Changes: Adoption of SFAS No. 133 (Derivatives) on January 1, 2001, resulted in a cumulative effect benefit of $12 million (net of tax) and $73 million in other comprehensive income.

Guidance, Outlook, and Risks

Management Commentary: Management highlighted strong performance in the Generation segment due to higher wholesale market prices and improved nuclear plant capacity factors (98.8% vs. 91.5% prior year). The Energy Delivery segment saw revenue growth from customer retention and rate adjustments, though offset by higher fuel costs. The Enterprises segment reported a loss of $31 million, primarily due to higher natural gas and capacity costs.

Liquidity and Capital: Operating cash flow improved significantly to $821 million. Exelon maintains a $2 billion unsecured revolving credit facility. On May 8, 2001 (subsequent event), Exelon issued $500 million in senior unsecured notes to repay term loans.

Risks and Contingencies:

• Market Risk: Exposure to commodity price volatility (energy) and interest rate fluctuations, managed via derivatives and hedging strategies.
• Regulatory/Litigation: A FERC order issued April 30, 2001, determined no refunds were due to ComEd's municipal customers regarding 1992-1994 rates, though the order is subject to appeal. Environmental liabilities for former manufactured gas plants are accrued at $170 million.
• Debt Covenants: PECO's debt-to-capitalization ratio (80%) exceeded its 65% covenant requirement; however, banks have agreed to a waiver through July 13, 2001.

Investor Verification Checklist

• Restructuring Accounting: Verify the impact of the January 2001 asset transfers on ComEd and PECO's standalone financial statements versus the consolidated Exelon results.
• Derivative Valuation: Review the $16 million net loss recognized on cash flow hedges and the $73 million transition adjustment under SFAS 133.
• Debt Covenants: Monitor PECO's compliance with the 65% debt-to-capitalization ratio post-waiver period (after July 13, 2001).
• Regulatory Recovery: Track the status of the Illinois Commerce Commission order regarding ComEd's nuclear decommissioning cost recovery ($73 million annually).
• Environmental Accruals: Assess the sufficiency of the $170 million environmental reserve for manufactured gas plant remediation.