EXC

Exelon Corp. 10-Q Summary: Period Ended September 30, 2005

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended September 30, 2005, for Exelon Corporation and its subsidiaries: Commonwealth Edison Company (ComEd), PECO Energy Company (PECO), and Exelon Generation Company, LLC (Generation). Exelon operates in two primary segments: Energy Delivery (regulated retail electricity and gas sales by ComEd and PECO) and Generation (wholesale electricity generation and marketing). The filing includes unaudited consolidated financial statements for all registrants.

Key Financial Metrics (Nine Months Ended Sept 30, 2005)

Note: Exelon's operating cash flow was significantly impacted by a $2 billion discretionary contribution to pension plans in the first quarter of 2005.

Material Changes vs. Prior Period

• Revenue Growth: Consolidated operating revenues increased 6.5% year-over-year to $11.5 billion, driven by favorable weather conditions increasing demand in Energy Delivery and higher wholesale market prices in Generation.
• Profitability: Net income rose 17.3% to $1.76 billion. Diluted earnings per share increased to $2.60 from $2.25 in the prior year.
• Segment Performance:
  • Generation: Net income surged 58.8% to $951 million due to higher margins on wholesale sales and unrealized mark-to-market gains, partially offset by a $43 million asbestos liability accrual.
  • Energy Delivery: Net income decreased 8.5% to $805 million. While revenues increased due to weather, higher purchased power costs (due to new Power Purchase Agreements with Generation) compressed margins.
• Discontinued Operations: Exelon and Generation reported income from discontinued operations of $13 million, primarily reflecting the gain on the sale of Sithe Energies, Inc. in January 2005.

Guidance, Outlook, and Risks

• Illinois Regulatory Risk (ComEd): Significant uncertainty surrounds ComEd's future due to pending regulatory proceedings (Procurement Case and Rate Case) before the Illinois Commerce Commission (ICC). If ComEd is forced to procure power at market rates but sell at regulated rates below cost starting in 2007, it could face insolvency, credit rating downgrades, and liquidity issues. Standard & Poor's downgraded Exelon and ComEd ratings in October 2005 due to this environment.
• Merger with PSEG: Exelon is pursuing a merger with Public Service Enterprise Group (PSEG). FERC approved the merger in June 2005, but state regulatory approvals in New Jersey and Pennsylvania are pending. A partial settlement in Pennsylvania was filed in September 2005.
• Synthetic Fuel Tax Credits: Exelon holds investments in synthetic fuel facilities that generate tax credits. These credits are subject to phase-out if crude oil prices exceed specific thresholds. While no phase-out is expected for 2005, significant phase-out is possible in 2006 and 2007 if oil prices remain high.
• Asbestos Liability: Generation recorded a $43 million pre-tax charge in Q2 2005 for estimated future asbestos-related bodily injury claims.
• Goodwill Impairment: Due to the regulatory uncertainty in Illinois, Exelon and ComEd noted that ongoing developments could result in a significant impairment of goodwill (approx. $4.7 billion) in the fourth quarter of 2005.

Investor Verification Checklist

• Illinois Regulatory Outcome: Monitor the final orders from the ICC regarding ComEd's Procurement Case and Rate Case, as these determine ComEd's ability to recover costs post-2006.
• Merger Approval Status: Track the progress of regulatory approvals in New Jersey (NJBPU) and Pennsylvania (PAPUC) for the PSEG merger.
• Oil Price Trends: Watch NYMEX crude oil prices to assess the risk of phase-out for synthetic fuel tax credits in 2006 and 2007.
• Credit Ratings: Verify current credit ratings for Exelon and ComEd following the October 2005 downgrade by S&P and review by Moody's.
• Goodwill Assessment: Review the Q4 2005 financial statements for any goodwill impairment charges related to the Energy Delivery segment.