EXC

Exelon Corp. Q1 2006 Filing Summary

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended March 31, 2006, for Exelon Corporation and its subsidiaries: Commonwealth Edison Company (ComEd), PECO Energy Company (PECO), and Exelon Generation Company, LLC (Generation). Exelon operates as a utility holding company with three primary segments: regulated energy delivery (ComEd in Illinois, PECO in Pennsylvania) and competitive generation/marketing (Generation). The filing includes unaudited consolidated financial statements and management discussion.

Key Financial Metrics

Note: Q1 2005 operating cash flow was negatively impacted by a $2 billion discretionary pension contribution.

Material Changes vs. Prior Period

• Net Income Decline: Net income decreased by $121 million (23%) primarily due to unrealized mark-to-market losses on energy contracts, unfavorable weather conditions, higher operating and maintenance expenses (including new stock-based compensation rules), and the absence of a $16 million gain from the sale of Sithe Energies recorded in Q1 2005.
• Revenue Growth: Operating revenues increased by $300 million, driven by higher wholesale and retail electric sales at Generation due to increased market prices, higher kWh deliveries at ComEd and PECO (excluding weather), and scheduled rate increases at PECO.
• Expense Increases: Purchased power and fuel expenses rose $259 million due to higher market energy prices and natural gas costs. Operating and maintenance expenses increased $88 million, partly due to the adoption of SFAS No. 123-R (Share-Based Payment).
• Cash Flow Improvement: Operating cash flow improved significantly to $848 million from a negative $1,009 million in the prior year, largely because the massive pension contribution made in Q1 2005 did not recur.

Guidance, Outlook, and Risks

• PSEG Merger: Exelon expects to complete its merger with Public Service Enterprise Group (PSEG) in the third quarter of 2006, pending final regulatory approvals from the New Jersey Board of Public Utilities and the Nuclear Regulatory Commission.
• Regulatory Risks (ComEd): ComEd faces uncertainty regarding post-2006 rates. The Illinois Commerce Commission approved a reverse-auction procurement process, but ComEd is opposing House Bill 5766, which would extend the rate freeze until 2010. If enacted, this could have adverse liquidity consequences and potentially require the elimination of regulatory accounting assets.
• Environmental & Legal: Generation is addressing tritium leaks at the Braidwood, Dresden, and Byron nuclear stations. A class-action lawsuit and a civil enforcement action by the Illinois Attorney General have been filed regarding Braidwood. Management believes reserves are adequate but acknowledges potential material penalties.
• Synthetic Fuel Tax Credits: Exelon estimates a 52% phase-out of tax credits for synthetic fuel facilities in 2006 due to oil prices, potentially reducing net income by up to $47 million compared to 2005.
• Dividends: Exelon declared a quarterly dividend of $0.40 per share. ComEd did not pay a dividend in Q1 2006 due to regulatory uncertainty and capital needs.

Investor Verification Checklist

• Merger Timeline: Verify the status of the PSEG merger regulatory approvals (NJBPU, NRC, DOJ) to confirm the Q3 2006 closing expectation.
• ComEd Rate Case: Monitor the outcome of the Illinois Commerce Commission rate case and the legislative status of House Bill 5766 (rate freeze extension), as these directly impact future revenue recovery and liquidity.
• Environmental Liabilities: Track the resolution of the Braidwood tritium litigation and the potential costs associated with the Clean Water Act Section 316(b) compliance at nuclear facilities.
• Oil Price Sensitivity: Monitor crude oil prices against the $59-$75 phase-out range for synthetic fuel tax credits, as volatility here directly affects net income.
• Derivative Exposure: Review the impact of unrealized mark-to-market losses on energy contracts, which significantly impacted Q1 2006 earnings.