<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-1839
COMMONWEALTH EDISON COMPANY
(Exact name of registrant as specified in its charter)
ILLINOIS 36-0938600
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
37th Floor, 10 South Dearborn Street,
Post Office Box 767, Chicago, Illinois 60690-0767
(Address of principal executive offices)
(Zip Code)
312/394-4321
(Registrant's telephone number, including area code)
Common Stock outstanding at April 30, 1994: 213,809,641 shares
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
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<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
PART I. FINANCIAL INFORMATION
INDEX
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Financial Statements:
Report of Independent Public Accountants............................... 2
Statements of Consolidated Income for the three months, six months and
twelve months ended June 30, 1993 and 1994............................ 3
Consolidated Balance Sheets--December 31, 1993 and June 30, 1994....... 4-5
Statements of Consolidated Capitalization--December 31, 1993 and June
30, 1994.............................................................. 6
Statements of Consolidated Retained Earnings for the three months, six
months and twelve months ended June 30, 1993 and 1994................. 7
Statements of Consolidated Premium on Common Stock and Other Paid-In
Capital for the three months, six months and twelve months ended June
30, 1993 and 1994..................................................... 7
Statements of Consolidated Cash Flows for the three months, six months
and twelve months ended June 30, 1993 and 1994........................ 8
Notes to Financial Statements.......................................... 9-29
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 30-42
</TABLE>
----------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Commonwealth Edison Company:
We have audited the accompanying consolidated balance sheets and statements
of consolidated capitalization of Commonwealth Edison Company (an Illinois
corporation) and subsidiary companies as of December 31, 1993 and June 30,
1994, and the related statements of consolidated income, retained earnings,
premium on common stock and other paid-in capital, and cash flows for the
three-month, six-month and twelve-month periods ended June 30, 1993 and 1994.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Commonwealth Edison Company
and subsidiary companies as of December 31, 1993 and June 30, 1994, and the
results of their operations and their cash flows for the three-month, six-month
and twelve-month periods ended June 30, 1993 and 1994, in conformity with
generally accepted accounting principles.
As discussed in Notes 13 and 14, effective January 1, 1993, the Company
changed its method of accounting for postretirement health care benefits and
income taxes, respectively.
Arthur Andersen & Co.
Chicago, Illinois
August 9, 1994
2
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED INCOME
The following statements of consolidated income for the three months, six
months and twelve months ended June 30, 1993 and 1994 reflect the results of
past operations and are not intended as any representation as to results of
operations for any future period. Future operations will necessarily be
affected by various and diverse factors and developments, including changes in
electric rates, population, business activity, taxes, environmental control,
energy use, fuel supply, cost of labor, fuel and purchased power and other
matters, the nature and effect of which cannot now be determined.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30 JUNE 30 JUNE 30
---------------------- ---------------------- ----------------------
1993 1994 1993 1994 1993 1994
---------- ---------- ---------- ---------- ---------- ----------
(THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Electric Operating Reve-
nues (Notes 2 and 3):
Operating revenues..... $1,513,372 $1,436,915 $3,057,178 $2,967,890 $6,229,868 $6,457,917
Provisions for revenue
refunds............... (82,825) (4,749) (143,246) (10,974) (143,921) (1,154,493)
---------- ---------- ---------- ---------- ---------- ----------
$1,430,547 $1,432,166 $2,913,932 $2,956,916 $6,085,947 $5,303,424
---------- ---------- ---------- ---------- ---------- ----------
Electric Operating Ex-
penses and Taxes:
Fuel (Notes 1, 2, 10
and 19)............... $ 258,631 $ 261,769 $ 544,859 $ 525,984 $ 968,122 $1,152,060
Purchased power........ 2,779 27,684 7,898 44,833 24,546 49,239
Deferred (under)/
overrecovered
energy costs--net
(Note 1).............. 6,486 (32,712) (2,952) (20,959) (284) (19,764)
Operation.............. 350,040 394,216 705,744 793,025 1,506,137 1,544,968
Maintenance............ 141,065 170,367 300,867 335,644 590,656 616,492
Depreciation (Note 1).. 215,409 221,937 430,128 443,869 848,412 876,508
Recovery of regulatory
assets................ 731 3,818 1,531 7,817 3,195 11,522
Taxes (except income)
(Note 15)............. 182,788 188,286 372,657 388,359 750,957 717,615
Income taxes (Notes 1
and 14)--
Current--Federal..... 32,959 21,819 75,941 56,467 159,498 (39,403)
--State.............. 4,481 1,113 12,945 1,825 27,438 (18,743)
Deferred--Federal--
net................. 344 (8,305) (7,671) (15,052) 64,060 80,670
--State--net......... 4,910 4,484 8,535 11,624 34,852 37,840
Investment tax credits
deferred--net (Notes
1 and 14)............. (7,299) (7,201) (14,613) (14,425) (29,098) (29,236)
---------- ---------- ---------- ---------- ---------- ----------
$1,193,324 $1,247,275 $2,435,869 $2,559,011 $4,948,491 $4,979,768
---------- ---------- ---------- ---------- ---------- ----------
Electric Operating In-
come................... $ 237,223 $ 184,891 $ 478,063 $ 397,905 $1,137,456 $ 323,656
---------- ---------- ---------- ---------- ---------- ----------
Other Income and (Deduc-
tions):
Interest on long-term
debt.................. $ (167,657) $ (155,841) $ (334,161) $ (312,993) $ (665,693) $ (630,013)
Interest on notes pay-
able.................. (81) (102) (162) (189) (425) (361)
Allowance for funds
used during construc-
tion (Note 1)--
Borrowed funds....... 4,242 4,317 6,446 10,495 16,060 20,979
Equity funds......... 4,890 5,070 7,616 12,426 18,669 25,428
Income taxes applicable
to nonoperating
activities (Notes 1
and 14)............... 557 23,303 6,165 20,570 7,409 44,318
Income tax reduction
for disallowed plant
costs................. -- -- -- -- -- 792
Deferred carrying
charges (Note 2)...... -- -- -- -- -- 438,183
Interest and other
costs for 1993
Settlements (Note 2).. -- (7,418) -- (17,893) -- (116,567)
Miscellaneous--net..... (4,080) (62,076) (21,399) (66,612) (30,006) (102,571)
---------- ---------- ---------- ---------- ---------- ----------
$ (162,129) $ (192,747) $ (335,495) $ (354,196) $ (653,986) $ (319,812)
---------- ---------- ---------- ---------- ---------- ----------
Net Income (Loss) Before
Cumulative Effect of
Change in Accounting
for Income Taxes....... $ 75,094 $ (7,856) $ 142,568 $ 43,709 $ 483,470 $ 3,844
Cumulative Effect of
Change in Accounting
for Income Taxes....... -- -- 9,738 -- 9,738 --
---------- ---------- ---------- ---------- ---------- ----------
Net Income (Loss)....... $ 75,094 $ (7,856) $ 152,306 $ 43,709 $ 493,208 $ 3,844
Provision for Dividends
on Preferred and
Preference Stocks...... 17,043 15,483 33,680 31,028 68,362 63,401
---------- ---------- ---------- ---------- ---------- ----------
Net Income (Loss) on
Common Stock........... $ 58,051 $ (23,339) $ 118,626 $ 12,681 $ 424,846 $ (59,557)
========== ========== ========== ========== ========== ==========
Average Number of Common
Shares Outstanding..... 213,466 213,923 213,401 213,851 213,236 213,733
Earnings (Loss) per
Common Share Before
Cumulative Effect of
Change in Accounting
for Income Taxes....... $0.27 $(0.11) $0.51 $0.06 $1.94 $(0.28)
Cumulative Effect of
Change in Accounting -- -- 0.05 -- 0.05 --
for Income Taxes....... ----- ------ ----- ----- ----- ------
Earnings (Loss) per Com- $0.27 $(0.11) $0.56 $0.06 $1.99 $(0.28)
mon Share.............. ===== ====== ===== ===== ===== ======
Cash Dividends Declared
per Common Share....... $0.40 $ 0.40 $0.80 $0.80 $1.60 $ 1.60
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
3
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
ASSETS 1993 1994
------ ------------ -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Utility Plant (Notes 1, 3, 8, 16 and 18):
Plant and equipment, at original cost (includes
construction work in progress of $1,040 million
and $979 million, respectively)................... $25,581,003 $25,930,946
Less--Accumulated provision for depreciation....... 8,790,519 9,211,955
----------- -----------
$16,790,484 $16,718,991
Nuclear fuel, at amortized cost.................... 662,562 661,624
----------- -----------
$17,453,046 $17,380,615
----------- -----------
Investments:
Nuclear decommissioning funds (Notes 1 and 11)..... $ 706,841 $ 836,930
Subsidiary companies (Notes 1 and 17).............. 122,332 122,700
Other investments, at cost (Note 17)............... 72,379 19,188
----------- -----------
$ 901,552 $ 978,818
----------- -----------
Current Assets:
Cash............................................... $ 743 $ 1,267
Temporary cash investments, at cost which approxi-
mates fair value (Note 11)........................ 247,119 265,603
Other cash investments, at cost which approximates
fair value (Note 11).............................. 641,575 21,043
Special deposits, at cost which approximates fair
value (Note 11)................................... 32,635 29,654
Receivables (Note 1)--
Customers........................................ 427,613 406,054
Income taxes..................................... 186,687 51,489
Other............................................ 66,963 35,892
Provisions for uncollectible accounts............ (10,910) (11,696)
Coal and fuel oil, at average cost................. 111,752 131,027
Materials and supplies, at average cost............ 402,714 402,538
Deferred unrecovered energy costs (Note 1)......... 43,885 69,497
Deferred income taxes related to current assets and
liabilities (Note 14)--
Loss carryforward................................ 175,197 131,264
Other............................................ 166,102 178,475
Prepayments and other.............................. 42,190 40,277
----------- -----------
$ 2,534,265 $ 1,752,384
----------- -----------
Deferred Charges and Other Noncurrent Assets:
Regulatory assets (Notes 1 and 14)................. $ 2,698,751 $ 2,654,183
Unrecovered energy costs (Note 1).................. 680,243 660,619
Other (Note 19).................................... 109,949 127,980
----------- -----------
$ 3,488,943 $ 3,442,782
----------- -----------
$24,377,806 $23,554,599
=========== ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
4
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
LIABILITIES 1993 1994
----------- ------------ -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Capitalization (see accompanying statements):
Common stock equity................................. $ 5,421,893 $ 5,221,379
Preferred and preference stocks without mandatory
redemption requirements............................ 441,445 438,536
Preference stock subject to mandatory redemption re-
quirements......................................... 309,964 306,984
Long-term debt...................................... 7,550,762 7,520,616
----------- -----------
$13,724,064 $13,487,515
----------- -----------
Current Liabilities:
Notes payable--bank loans (Note 9).................. $ 5,950 $ 6,100
Current portion of long-term debt, redeemable pref-
erence stock and capitalized lease obligations
(Note 11).......................................... 630,050 654,546
Accounts payable.................................... 444,080 359,746
Accrued interest.................................... 186,825 187,353
Accrued taxes....................................... 132,362 173,678
Dividends payable (Note 20)......................... 101,047 151,080
Estimated revenue refunds and related interest (Note
2)................................................. 1,166,308 521,729
Customer deposits................................... 45,757 44,864
Other............................................... 143,519 129,346
----------- -----------
$ 2,855,898 $ 2,228,442
----------- -----------
Deferred Credits and Other Noncurrent Liabilities:
Deferred income taxes (Note 14)..................... $ 4,445,173 $ 4,376,420
Accumulated deferred investment tax credits (Notes 1
and 14)............................................ 746,508 732,084
Accrued spent nuclear fuel disposal fee and related
interest (Note 10)................................. 566,527 576,277
Obligations under capital leases (Note 16).......... 321,393 322,116
Regulatory liabilities (Notes 1, 14 and 19)......... 782,624 764,728
Other (Notes 1, 12 and 13).......................... 935,619 1,067,017
----------- -----------
$ 7,797,844 $ 7,838,642
----------- -----------
Commitments and Contingent Liabilities (Note 19)
$24,377,806 $23,554,599
=========== ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
5
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED CAPITALIZATION
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1993 1994
------------ -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Common Stock Equity (Notes 4 and 5):
Common stock, $12.50 par value per share--
Outstanding--213,751,147 shares and 214,070,315
shares, respectively............................. $ 2,671,889 $ 2,675,879
Premium on common stock and other paid-in capital.. 2,217,110 2,221,060
Capital stock and warrant expense.................. (16,258) (16,251)
Retained earnings (Notes 2 and 20)................. 549,152 340,691
----------- -----------
$ 5,421,893 $ 5,221,379
----------- -----------
Preferred and Preference Stocks Without Mandatory
Redemption Requirements (Notes 4, 6, 11 and 21):
Preference stock, cumulative, without par value--
Outstanding--10,499,549 shares.................... $ 432,320 $ 432,320
$1.425 convertible preferred stock, cumulative,
without par value--
Outstanding--286,949 shares and 195,475 shares,
respectively..................................... 9,125 6,216
Prior preferred stock, cumulative, $100 par value
per share--
No shares outstanding............................. -- --
----------- -----------
$ 441,445 $ 438,536
----------- -----------
Preference Stock Subject to Mandatory Redemption
Requirements (Notes 4, 7 and 11):
Preference stock, cumulative, without par value--
Outstanding--3,290,290 shares and 3,261,420
shares, respectively............................. $ 327,653 $ 324,785
Current redemption requirements for preference
stock included in current liabilities............. (17,689) (17,801)
----------- -----------
$ 309,964 $ 306,984
----------- -----------
Long-Term Debt (Notes 8, 11 and 21):
First mortgage bonds:
Maturing through 1998--
6 1/8% due May 15, 1995........................ $ 103,000 $ 103,000
5 1/4% due April 1, 1996....................... 50,000 50,000
5 3/4% due November 1, 1996.................... 50,000 50,000
5 3/4% due December 1, 1996.................... 50,000 50,000
7% due February 1, 1997........................ 150,000 150,000
5 3/8% due April 1, 1997....................... 50,000 50,000
6 1/4% due October 1, 1997..................... 60,000 60,000
6 1/4% due February 1, 1998.................... 50,000 50,000
6% due March 15, 1998.......................... 130,000 130,000
6 3/4% due July 1, 1998........................ 50,000 50,000
6 3/8% due October 1, 1998..................... 75,000 75,000
Maturing 1999 through 2008--5.30% to 10 3/8%..... 2,204,600 2,230,600
Maturing 2009 through 2018--5.70% to 10 5/8%..... 956,000 996,000
Maturing 2019 through 2023--7 3/4% to 9 7/8%..... 2,020,000 2,020,000
----------- -----------
$ 5,998,600 $ 6,064,600
Sinking fund debentures, due 1999 through 2011--
2 3/4% to 7 5/8%.................................. 120,185 112,643
Pollution control obligations, due 2004 through
2014--5 7/8% to 11 3/8%........................... 353,200 287,200
Other long-term debt............................... 1,598,625 1,528,586
Current maturities of long-term debt included in
current liabilities............................... (446,724) (401,757)
Unamortized net debt discount and premium (Note 1). (73,124) (70,656)
----------- -----------
$ 7,550,762 $ 7,520,616
----------- -----------
$13,724,064 $13,487,515
=========== ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
6
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED RETAINED EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30 JUNE 30 JUNE 30
------------------- ----------------- -------------------
1993 1994 1993 1994 1993 1994
--------- --------- -------- -------- ---------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Balance at Beginning of
Period................. $ 822,419 $ 499,655 $847,186 $549,152 $ 711,699 $793,449
Add--Net income (loss).. 75,094 (7,856) 152,306 43,709 493,208 3,844
--------- --------- -------- -------- ---------- --------
$ 897,513 $ 491,799 $999,492 $592,861 $1,204,907 $797,293
--------- --------- -------- -------- ---------- --------
Deduct--
Dividends declared
on--
Common stock........ $ 85,410 $ 135,628 $170,753 $221,146 $ 341,274 $392,076
Preferred and pref-
erence stocks...... 17,177 15,453 33,813 30,997 68,080 62,872
Loss on reacquired
preference stock.... 1,477 27 1,477 27 2,104 1,654
--------- --------- -------- -------- ---------- --------
$ 104,064 $ 151,108 $206,043 $252,170 $ 411,458 $456,602
--------- --------- -------- -------- ---------- --------
Balance at End of Peri-
od..................... $ 793,449 $ 340,691 $793,449 $340,691 $ 793,449 $340,691
========= ========= ======== ======== ========== ========
</TABLE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED PREMIUM ON COMMON STOCK
AND OTHER PAID-IN CAPITAL
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30 JUNE 30 JUNE 30
--------------------- --------------------- ---------------------
1993 1994 1993 1994 1993 1994
---------- ---------- ---------- ---------- ---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Balance at Beginning of
Period................. $2,211,226 $2,217,775 $2,210,524 $2,217,110 $2,207,223 $2,213,577
Add--Premium on issuance
of common stock and
gain on reacquired
preference stock....... 2,351 3,285 3,053 3,950 6,354 7,483
---------- ---------- ---------- ---------- ---------- ----------
Balance at End of Peri-
od..................... $2,213,577 $2,221,060 $2,213,577 $2,221,060 $2,213,577 $2,221,060
========== ========== ========== ========== ========== ==========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
7
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30 JUNE 30 JUNE 30
-------------------- ---------------------- ------------------------
1993 1994 1993 1994 1993 1994
--------- --------- ----------- --------- ----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Cash Flow from Operating
Activities:
Net income (loss)...... $ 75,094 $ (7,856) $ 152,306 $ 43,709 $ 493,208 $ 3,844
Adjustments to
reconcile net income
(loss) to net cash
provided by operating
activities:
Depreciation and am-
ortization.......... 227,095 230,948 451,650 463,681 890,354 923,168
Deferred income taxes
and investment tax
credits--net........ (1,375) (32,183) (17,268) (36,894) 68,707 64,697
Cumulative effect of
change in accounting
for income taxes.... -- -- (9,738) -- (9,738) --
Equity component of
allowance for funds
used during
construction........ (4,890) (5,070) (7,616) (12,426) (18,669) (25,428)
Provisions for
revenue refunds and
related interest.... 82,832 12,220 143,589 28,990 150,332 1,239,598
Revenue refunds and
related interest.... (6) (327,016) (3,629) (673,568) (250,951) (860,661)
Recovery/(deferral)
of regulatory
assets/deferred car-
rying charges--net.. 731 3,818 1,531 7,817 3,195 (426,661)
Provisions/(payments)
for liability for
early retirement and
separation costs--
net................. (232) 15,930 (1,954) 31,537 25,860 31,675
Net effect on cash
flows of changes in:
Receivables........ (43,105) (25,111) (96,685) 188,614 (63,507) 127,894
Coal and fuel oil.. 26,517 (22,047) 95,166 (19,275) 49,184 100,941
Materials and sup-
plies............. (11,890) 3,169 (12,079) 176 (4,410) 14,089
Accounts payable
adjusted for
nuclear fuel lease
principal payments
and early
retirement and
separation costs--
net............... (2,891) 67,651 25,500 15,200 94,795 268,645
Accrued interest
and taxes......... (75,863) (8,880) (23,250) 41,844 (15,531) 25,860
Other changes in
certain current
assets and
liabilities....... 16,547 (53,995) (4,655) (34,775) 56,041 (36,757)
Other--net........... 45,671 90,230 97,149 129,214 96,555 141,258
--------- --------- ----------- --------- ----------- -----------
$ 334,235 $ (58,192) $ 790,017 $ 173,844 $ 1,565,425 $ 1,592,162
--------- --------- ----------- --------- ----------- -----------
Cash Flow from Investing
Activities:
Construction expendi-
tures................. $(182,651) $(191,213) $ (382,487) $(378,591) $ (898,030) $ (837,630)
Nuclear fuel expendi-
tures................. (51,762) (56,550) (152,749) (105,299) (260,008) (213,919)
Equity component of
allowance for funds
used during
construction.......... 4,890 5,070 7,616 12,426 18,669 25,428
Contributions to nu-
clear decommissioning
funds................. -- -- (96,229) (96,229) (132,550) (132,550)
Investment in subsidi-
ary companies......... -- -- -- -- (268) --
Other cash investments
and special deposits.. (3,097) 548,883 (2,470) 620,532 (16,239) 3,654
--------- --------- ----------- --------- ----------- -----------
$(232,620) $ 306,190 $ (626,319) $ 52,839 $(1,288,426) $(1,155,017)
--------- --------- ----------- --------- ----------- -----------
Cash Flow from Financing
Activities:
Issuance of securi-
ties--
Long-term debt........ $ 602,701 $ 211,576 $ 977,456 $ 277,114 $ 1,925,411 $ 1,226,954
Capital stock......... 73,294 3,996 74,636 5,031 82,728 10,982
Retirement and redemp-
tion of securities--
Long-term debt........ (934,078) (300,445) (1,059,177) (355,752) (1,479,332) (1,197,115)
Capital stock......... (33,825) (2,887) (33,936) (2,887) (81,005) (62,031)
Deposits and securi-
ties held for retire-
ment and redemption
of securities......... 323,667 16,082 89,534 3,194 (155,496) 155,392
Premium paid on early
redemption of long-
term debt............. (43,940) (400) (52,940) (900) (56,221) (26,355)
Cash dividends paid on
capital stock......... (102,458) (101,062) (204,419) (202,109) (484,829) (405,975)
Proceeds from
sale/leaseback of nu-
clear fuel............ 22,096 51,056 121,647 168,020 224,289 250,628
Nuclear fuel lease
principal payments.... (59,372) (46,091) (118,641) (99,536) (251,885) (226,862)
Increase in short-term
borrowings............ -- -- -- 150 3,500 500
--------- --------- ----------- --------- ----------- -----------
$(151,915) $(168,175) $ (205,840) $(207,675) $ (272,840) $ (273,882)
--------- --------- ----------- --------- ----------- -----------
Increase (Decrease) in
Cash and Temporary Cash
Investments............ $ (50,300) $ 79,823 $ (42,142) $ 19,008 $ 4,159 $ 163,263
Cash and Temporary Cash
Investments at
Beginning of Period.... 153,907 187,047 145,749 247,862 99,448 103,607
--------- --------- ----------- --------- ----------- -----------
Cash and Temporary Cash
Investments at End of
Period................. $ 103,607 $ 266,870 $ 103,607 $ 266,870 $ 103,607 $ 266,870
========= ========= =========== ========= =========== ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
8
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
Regulation. Commonwealth Edison Company (Company) is subject to regulation as
to accounting and ratemaking policies and practices by the Illinois Commerce
Commission (ICC) and Federal Energy Regulatory Commission (FERC). The Company's
accounting policies and the accompanying consolidated financial statements
conform to generally accepted accounting principles applicable to rate-
regulated enterprises and reflect the effects of the ratemaking process. Such
effects concern mainly the time at which various items enter into the
determination of net income in order to follow the principle of matching costs
and revenues. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations," subcaption "Liquidity and Capital Resources," for
information related to the Company's rates and financial condition.
Principles of Consolidation. The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiary, Commonwealth
Edison Company of Indiana, Inc. (collectively, companies), the only subsidiary
engaged in the electric utility business. The consolidated financial statements
also include the accounts of the Company's wholly-owned subsidiary, Unicom
Enterprises Inc., an unregulated subsidiary engaged in energy service
activities. All significant intercompany transactions have been eliminated. The
investments in other subsidiary companies, which are not material in relation
to the Company's financial position and results of operations, are accounted
for in accordance with the equity method of accounting.
Customer Receivables and Revenues. The Company is engaged principally in the
production, purchase, transmission, distribution and sale of electricity to a
diverse base of residential, commercial and industrial customers. The Company's
electric service territory has an area of approximately 11,540 square miles and
an estimated population of approximately 8.1 million as of December 31, 1993,
approximately 8.2 million as of December 31, 1992 and approximately 8.1 million
as of December 31, 1991. It includes the city of Chicago, an area of about 225
square miles with an estimated population of three million from which the
Company derived approximately one-third of its ultimate consumer revenues in
the twelve months ended June 30, 1994. The Company had approximately 3.3
million electric customers at June 30, 1994.
Depreciation and Decommissioning. Depreciation is provided on the straight-
line basis by amortizing the cost of depreciable plant and equipment over
estimated composite service lives. A March 8, 1991 ICC rate order directs the
Company to depreciate non-nuclear plant and equipment at annual rates developed
for each class of plant based on their composite service lives. The annual rate
for nuclear plant and equipment is 2.88% which excludes decommissioning costs.
Provisions for depreciation were at average annual rates of 3.14% and 3.15% for
the three months ended June 30, 1993 and 1994, respectively, 3.14% and 3.15%
for the six months ended June 30, 1993 and 1994, respectively, and 3.12% and
3.13% for the twelve months ended June 30, 1993 and 1994, respectively, of
average depreciable utility plant and equipment. The provisions for chemical
cleaning are reflected in the Statements of Consolidated Income in maintenance
expense and in the Consolidated Balance Sheets in other noncurrent liabilities.
Nuclear plant decommissioning costs are accrued over the expected service
life of the related nuclear generating stations. The accrual is based on an
annual levelized cost of the unrecovered portion of estimated decommissioning
costs which are escalated for expected inflation to the expected time of
decommissioning and are net of expected earnings on the trust fund. See
"Decommissioning" under "Management's Discussion and Analysis of Financial
Condition and Results of Operations," subcaption "Results of Operations," for a
discussion of questions raised by the staff of the Securities and Exchange
Commission (SEC) regarding the electric utility industry method of accounting
for decommissioning costs. Dismantling is expected to occur relatively soon
after the end of the useful life of each related generating station. The
accrual for decommissioning is based on the prompt removal method authorized by
the
9
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
Nuclear Regulatory Commission (NRC) guidelines. The Company's twelve operating
units have estimated remaining service lives ranging from 13 to 34 years. The
Company's first nuclear unit is retired and will be dismantled upon the
retirement of the remaining units at that station, which is consistent with the
regulatory treatment for the related decommissioning costs.
The Company recently completed a study which determined that decommissioning
costs, including the costs of decontamination, dismantling and site
restoration, are estimated to aggregate $4.24 billion, in current-year (1994)
dollars. This amount compares to the estimate for decommissioning costs of
$2.45 billion, in current-year (1994) dollars, reflected in the Company's last
rate order of March 8, 1991. The $4.24 billion estimate is based on plant
location and cost characteristics for the Company's nuclear plants and reflects
additional low-level waste burial costs, higher labor costs due to reduced
administrative radiation dose limit requirements and higher costs resulting
from an additional five-year period in the decommissioning process to allow
sufficient cooling of on-site spent nuclear fuel before it is removed from the
fuel pool.
On February 10, 1994, the Company filed a rate increase request with the ICC.
As part of that request, the Company proposed to increase its annual accrual of
decommissioning costs to approximately $170 million from the current level of
$127 million approved in the March 8, 1991 rate order. The assumptions used to
calculate the $43 million proposed increase in the annual accrual of
decommissioning costs (such as the decommissioning cost estimate of $4.06
billion, stated in 1993 dollars, after-tax earnings on the tax-qualified and
nontax-qualified decommissioning funds of 7.30% and 6.26%, respectively, as
well as a future escalation rate of 5.3% in decommissioning costs) reflect some
uncertainty. The rate filing is designed to provide greater assurance than
current rate levels that sufficient funds will be available in the external
decommissioning trusts for decommissioning expenditures when the nuclear plants
are retired. The current accrual of $127 million, coupled with accumulated
earnings on the trust fund assets, would provide approximately the same amount
of funds to pay estimated decommissioning costs if a 4.5% escalation rate is
assumed.
For the twelve operating nuclear units, decommissioning costs are recorded as
portions of depreciation expense and accumulated provision for depreciation on
the Statements of Consolidated Income and the Consolidated Balance Sheets,
respectively. As of June 30, 1994, the total decommissioning costs included in
the accumulated provision for depreciation were approximately $923 million. For
the retired nuclear unit, the total estimated liability at June 30, 1994 in
current-year (1994) dollars of approximately $230 million was recorded on the
Consolidated Balance Sheets as a noncurrent liability and the unrecovered
portion of the liability of approximately $143 million was recorded as a
regulatory asset. Illinois law requires the Company to establish external
trusts to hold decommissioning funds, and the ICC has approved the Company's
funding plan and requires annual contributions of current accruals and ratable
contributions of past accruals over the remaining service lives of the nuclear
plants. At June 30, 1994, the past accruals that are required to be contributed
to the external trusts aggregate $173 million. The fair value of funds
accumulated in the external trusts at June 30, 1994 was approximately $837
million which includes pre-tax unrealized appreciation of $14 million. The
earnings on the external trusts accumulate in the fund balance and in the
accumulated provision for depreciation. Such earnings on the external trust
funds, which have been recorded as a component of depreciation expense in the
Company's Statements of Consolidated Income, were $11,108,000 and $7,803,000
for the three months ended June 30, 1993 and 1994, respectively, $19,891,000
and $20,329,000 for the six months ended June 30, 1993 and 1994, respectively,
and $37,202,000 and $41,268,000 for the twelve months ended June 30, 1993 and
1994, respectively.
10
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
Amortization of Nuclear Fuel. The cost of nuclear fuel is amortized to fuel
expense based on the quantity of heat produced using the unit of production
method. As authorized by the ICC, provisions for spent nuclear fuel disposal
costs have been recorded at a level required to recover the fee payable on
current nuclear-generated and sold electricity and the current interest accrual
on the one-time fee payable to the Department of Energy (DOE) for nuclear
generation prior to April 7, 1983. The one-time fee and interest thereon have
been recovered and the current fee and current interest on the one-time fee are
currently being recovered through the fuel adjustment clause. See Note 10 for
further information concerning the disposal of spent nuclear fuel, the one-time
fee and the current interest accrual on the one-time fee. Nuclear fuel
expenses, including leased fuel costs and provisions for spent nuclear fuel
disposal costs, for the three months ended June 30, 1993 and 1994 were
$100,173,000 and $76,916,000, respectively, for the six months ended June 30,
1993 and 1994 were $189,028,000 and $166,159,000, respectively, and for the
twelve months ended June 30, 1993 and 1994 were $384,404,000 and $363,025,000,
respectively.
Income Taxes. Deferred income taxes are provided for income and expense items
recognized for financial accounting purposes in periods that differ from those
for income tax purposes. Income taxes deferred in prior years are charged or
credited to income as the book/tax timing differences reverse. Prior years'
deferred investment tax credits are amortized through credits to income
generally over the lives of the related property. Income tax credits resulting
from interest charges applicable to nonoperating activities, principally
construction, are classified as other income.
For additional information relating to income taxes, including information
related to the Company's adoption in January 1993 of Statement of Financial
Accounting Standards (SFAS) No. 109, Accounting for Income Taxes, which
requires an asset and liability approach to accounting for income taxes, see
Note 14. In addition, see "Income Taxes" under the subcaption "Results of
Operations," in "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
Allowance for Funds Used During Construction (AFUDC). In accordance with
uniform systems of accounts prescribed by regulatory authorities, the Company
capitalizes AFUDC, compounded semiannually, which represents the estimated cost
of funds used to finance its construction program. The equity component of
AFUDC is recorded on an after-tax basis and the borrowed funds component of
AFUDC is recorded on a pre-tax basis. The average annual capitalization rates
for the three months ended June 30, 1993 and 1994 were 10.08% and 9.84%,
respectively, for the six months ended June 30, 1993 and 1994 were 10.15% and
9.84%, respectively, and for the twelve months ended June 30, 1993 and 1994
were 10.20% and 9.89%, respectively.
For additional information regarding AFUDC, see Note 14 and "Other Items,"
under the subcaption "Results of Operations," in "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Interest. Total interest costs incurred on debt, leases and other obligations
for the three months ended June 30, 1993 and 1994 were $182,226,000 and
$183,415,000, respectively, for the six months ended June 30, 1993 and 1994
were $363,456,000 and $373,540,000, respectively, and for the twelve months
ended June 30, 1993 and 1994 were $725,263,000 and $788,722,000, respectively.
Debt Discount, Premium and Expense. Discount, premium and expense on long-
term debt are being amortized over the lives of the respective issues.
Loss on Reacquired Debt. Consistent with regulatory treatment, the net loss
from reacquisition of first mortgage bonds, sinking fund debentures and
pollution control obligations prior to their scheduled maturity dates is
deferred and amortized over the lives of the long-term debt issued to finance
the reacquisition.
11
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
Deferred Unrecovered Energy Costs. The uniform fuel adjustment clause adopted
by the ICC provides for the recovery of changes in fossil and nuclear fuel
costs and the energy portion of purchased power costs as compared to the fuel
and purchased energy costs included in base rates. As authorized by the ICC,
the Company has recorded under or overrecoveries of allowable fuel and energy
costs which, under the clause, are recoverable or refundable in subsequent
months. Deferred unrecovered energy costs also include amounts to be recovered
through the fuel adjustment clause for assessments by the DOE to fund a portion
of the cost for the decontamination and decommissioning of three nuclear
enrichment facilities previously operated by the DOE. As of December 31, 1993
and June 30, 1994, an asset of approximately $202 million and $195 million,
respectively, was recorded, of which the current portion of approximately $15
million has been included in current assets on the Consolidated Balance Sheets.
As of December 31, 1993 and June 30, 1994, a corresponding liability of
approximately $177 million was recorded in other noncurrent liabilities and
approximately $29 million and $15 million, respectively, was recorded in other
current liabilities.
At December 31, 1993 and June 30, 1994, the Company had unrecovered fuel
costs in the form of coal reserves of approximately $517 million and $509
million, respectively. In prior years, the Company's commitments for the
purchase of coal exceeded its requirements. Rather than take all the coal it
was required to take, the Company agreed to purchase the coal in place in the
form of coal reserves. The Company has been allowed to recover from its
customers the costs of the coal reserves through its fuel adjustment clause as
the coal is used for the generation of electricity. The Company expects to
recover the costs of the coal reserves by the year 2007. However, the Company
is not earning a return on the expenditures for coal reserves prior to the coal
reserves being used for the generation of electricity by including the coal
reserves in rate base. Unrecovered fuel costs expected to be recovered within
one year amounting to approximately $24 million and $29 million at December 31,
1993 and June 30, 1994, respectively, have been included on the Consolidated
Balance Sheets in current assets as deferred unrecovered energy costs. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," subcaptions "Liquidity and Capital Resources" and "Results of
Operations," for information concerning coal commitments and the Company's fuel
supply, respectively. See Note 19 for additional information concerning the
Company's coal commitments.
Regulatory Assets and Liabilities. Regulatory assets include the unamortized
portions of certain rate case and consultant costs associated with the prudency
audits of Byron and Braidwood stations which the ICC allowed to be deferred and
amortized for ratemaking purposes, unamortized deferred depreciation related to
Byron Unit 1 which the ICC allowed to be deferred and amortized over the
remaining life of the unit, unamortized losses on reacquired debt, unamortized
deferred carrying charges associated with the Byron and Braidwood stations
which the ICC allowed to be deferred and amortized for ratemaking purposes, a
regulatory asset for the unrecovered portion of nuclear decommissioning costs
for Dresden Unit 1 and a regulatory asset related to income taxes recorded in
compliance with SFAS No. 109, which the Company adopted in January 1993. A
regulatory liability related to income taxes was also recorded in compliance
with SFAS No. 109. Regulatory liabilities also include a liability
corresponding to a noncurrent receivable included on the Consolidated Balance
Sheets under deferred charges and other noncurrent assets, subcaption other,
which represents the Company's contractual settlement option if it had
terminated its insurance coverages with Nuclear Mutual Limited (NML) as of the
balance sheet dates. See Note 19 for additional information regarding the
Company's insurance coverages with NML.
For additional information relating to deferred carrying charges, see
"Deferred Carrying Charges," under the subcaption "Results of Operations," in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
12
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
Certain Investments. Effective January 1, 1994, the Company adopted SFAS No.
115, Accounting for Certain Investments in Debt and Equity Securities, which
addresses the accounting and reporting for investments in equity securities
that have readily determinable fair values and for all investments in debt
securities. For additional information, see Note 11.
Reclassifications. Certain prior year amounts have been reclassified to
conform with current period presentation. These reclassifications had no effect
on net income.
Statements of Consolidated Cash Flows. For purposes of the Statements of
Consolidated Cash Flows, temporary cash investments, generally investments
maturing in three months or less at the time of purchase, are considered to be
cash equivalents. Supplemental information required by SFAS No. 95 is as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30 JUNE 30 JUNE 30
------------------- ----------------- -------------------
1993 1994 1993 1994 1993 1994
--------- --------- -------- -------- --------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Supplemental Cash Flow
Information:
Cash paid during the
period for:
Interest (net of
amount capitalized). $149,357 $146,937 $350,607 $319,884 $668,381 $646,945
Income taxes (net of
refunds)............ $106,170 $ 55,798 $107,062 $(77,591) $208,070 $(81,639)
Supplemental Schedule of
Non-Cash Investing and
Financing Activities:
Capital lease obliga-
tions incurred........ $ 22,332 $ 52,370 $130,509 $169,869 $233,524 $253,118
</TABLE>
(2) SETTLEMENTS RELATING TO CERTAIN RATE MATTERS. In November 1993, two
settlements related to various proceedings and matters concerning the Company's
rates and its fuel adjustment clause became final. One settlement (Rate Matters
Settlement), which became final on November 4, 1993, concerned the proceedings
relating to the Company's 1985 and 1991 ICC rate orders (which orders relate
to, among other things, the recovery of costs associated with the Company's
four most recently completed nuclear generating units, Byron Units 1 and 2 and
Braidwood Units 1 and 2), the proceedings relating to the reduction in the
difference between the Company's summer and non-summer residential rates that
was effected in the summer of 1988, outstanding issues relating to the
appropriate interest rate and rate design to be applied to a refund made by the
Company during 1990 relating to a December 1988 ICC rate order, and matters
related to a rider to the Company's rates that the Company was required to file
as a result of the change in the federal corporate income tax rate made by the
Tax Reform Act of 1986. The other settlement (Fuel Matters Settlement), which
became final on November 15, 1993, related to the ICC fuel reconciliation
proceedings involving the Company for the period from 1985 through 1988 and to
future challenges by the settling parties to the prudency of the Company's
western coal costs for the period from 1989 through 1992.
Under the Rate Matters Settlement, effective as of November 4, 1993, the
Company reduced its rates by approximately $339 million annually and commenced
refunding approximately $1.26 billion (including revenue taxes), plus interest
at five percent on the unpaid balance, through temporarily reduced rates over
an initial refund period of twelve months (to be followed by a reconciliation
period of no more than five months). The Company had previously deferred the
recognition of revenues during 1993 as a result of developments in the
proceedings related to the March 1991 ICC rate order, which resulted in a
reduction to 1993 net income of approximately $160 million or $0.75 per common
share. The recording of the effects of the Rate Matters Settlement in October
1993 reduced the Company's 1993 net income by approximately $292 million or
$1.37 per common share, in addition to the approximately $160 million effect of
the deferred recognition of revenues and after the partially offsetting effect
of recording approximately $269 million (or $1.26 per common share) in deferred
carrying charges, net of income
13
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
taxes, authorized in the ICC rate order issued on January 6, 1993 (as
subsequently modified, the Remand Order). The deferred recognition of revenues
was eliminated in October 1993 at the time the provisions for revenue refunds
related to the Rate Matters Settlement, which reflected those deferred
revenues, were recorded. Consistent with such treatment of the deferred
recognition of revenues in 1993, the financial statements presented herein for
the three months, six months and twelve months ended June 30, 1993 and the
twelve months ended June 30, 1994 reflect the reclassification of the deferred
recognition of revenues from operating revenues to provisions for revenue
refunds. This reclassification had no effect on net electric operating
revenues. In January 1994, a purported class action was filed in the Circuit
Court of Cook County, Illinois (Circuit Court) challenging the method in which
the refunds are being made to residential customers in the Rate Matters
Settlement. That action has been dismissed with prejudice. Although plaintiff
may appeal, the Company does not believe that the action has any merit.
Under the Fuel Matters Settlement, effective as of December 2, 1993, the
Company commenced paying approximately $108 million (including revenue taxes)
to its customers through temporarily reduced collections under its fuel
adjustment clause over a twelve-month period. The Company recorded the effects
of the Fuel Matters Settlement in October 1993, which effects reduced the
Company's 1993 net income by approximately $62 million or $0.29 per common
share.
(3) OTHER RATE MATTERS. On February 10, 1994, the Company filed a request
with the ICC to increase electric operating revenues by approximately $460
million, or 7.9%, on an annual basis above the level of revenues approved in
the Rate Matters Settlement. This request principally reflects the inclusion of
Byron Unit 2 and Braidwood Units 1 and 2 (Units) in the Company's rate base as
fully "used and useful," increased operation and maintenance expenses over the
level reflected in the Remand Order, increased contributions to the external
trust funds which the Company is required to fund to cover the eventual
decommissioning of its nuclear power plants and lower debt and equity costs.
The ICC has suspended the rates, appointed hearing examiners and ordered an
investigation. On July 21, 1994, the ICC Staff (Staff) submitted their
recommendation that the Company receive a total rate increase of just over $300
million (of which approximately $43 million is for increased contributions to
the external decommissioning trust funds). Staff's testimony recommended that
Byron Unit 2 and Braidwood Unit 1 be found fully "used and useful" and
Braidwood Unit 2 be found approximately 63% "used and useful." Under the
Illinois Public Utilities Act, the ICC must decide the case by early January
1995.
In the Remand Order, the rate determination was based upon, among other
things, findings by the ICC with respect to the extent to which the Units were
"used and useful" during the 1991 test year period of the rate order. With
respect to the "used and useful" issue, the ICC applied a needs and economic
benefits methodology, using a twenty percent reserve margin and forecasted peak
demand, and found Byron Unit 2 and Braidwood Units 1 and 2 to be 93%, 21% and
0%, respectively, "used and useful." The Company has not recorded any
disallowances related to the "used and useful" issue. The Company considers the
"used and useful" disallowance in the Remand Order to be temporary. The ICC
concluded in the Remand Order that the forecasts in the record in that
proceeding indicate that Braidwood Units 1 and 2 will be fully "used and
useful" within the reasonably foreseeable future.
(4) AUTHORIZED SHARES AND VOTING RIGHTS OF CAPITAL STOCK. At June 30, 1994,
the authorized shares of capital stock were: common stock--250,000,000 shares;
preference stock--23,571,420 shares; $1.425 convertible preferred stock--
195,475 shares; and prior preferred stock--850,000 shares. The preference and
prior preferred stocks are issuable in series and may be issued with or without
mandatory redemption requirements. Holders of shares at any time outstanding,
regardless of class, are entitled to one vote for each share held on each
matter submitted to a vote at a meeting of shareholders, with the right to
cumulate votes in all elections for directors.
14
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(5) COMMON STOCK. At June 30, 1994, shares of common stock were reserved for
the following purposes:
<TABLE>
<S> <C>
1993 Long-Term Incentive Plan................................... 4,000,000
Employe Stock Purchase Plan..................................... 1,267,658
Employe Savings and Investment Plan............................. 500,203
Conversion of $1.425 convertible preferred stock................ 199,384
Conversion of warrants.......................................... 36,442
---------
6,003,687
=========
</TABLE>
During the three months, six months and twelve months ended June 30, 1993 and
1994, shares of common stock were issued as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30 JUNE 30 JUNE 30
------------------- --------------- -------------------
1993 1994 1993 1994 1993 1994
--------- --------- ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Employe Stock Purchase
Plan................... 138,648 154,710 138,648 154,710 363,393 284,656
Employe Savings and In-
vestment Plan.......... 17,500 27,600 70,200 65,600 216,400 148,800
Conversion of $1.425
convertible preferred
stock.................. 7,536 87,356 8,589 93,106 9,408 106,892
Conversion of warrants.. 451 5,554 612 5,752 1,229 6,514
--------- --------- ------- ------- --------- ---------
164,135 275,220 218,049 319,168 590,430 546,862
========= ========= ======= ======= ========= =========
</TABLE>
At December 31, 1993 and June 30, 1994, 128,699 and 109,328 common stock
purchase warrants, respectively, were outstanding. The warrants entitle the
holders to convert such warrants into common stock at a conversion rate of one
share of common stock for three warrants.
(6) PREFERRED AND PREFERENCE STOCKS WITHOUT MANDATORY REDEMPTION
REQUIREMENTS. No shares of preferred or preference stocks without mandatory
redemption requirements were issued or redeemed by the Company during the
twelve months ended June 30, 1993 and 1994. The series of preference stock
without mandatory redemption requirements outstanding at June 30, 1994 are
summarized as follows:
<TABLE>
<CAPTION>
INVOLUNTARY
SHARES AGGREGATE REDEMPTION LIQUIDATION
SERIES OUTSTANDING STATED VALUE PRICE(A) PRICE(A)
------ ----------- ------------ ---------- -----------
(THOUSANDS
OF DOLLARS)
<S> <C> <C> <C> <C>
$1.90 4,249,549 $106,239 $ 25.25 $25.00
$2.00 2,000,000 51,560 $ 26.04 $25.00
$1.96 2,000,000 52,440 $ 27.11 $25.00
$7.24 750,000 74,340 $101.00 $99.12
$8.40 750,000 74,175 $101.00 $98.90
$8.38 750,000 73,566 $100.16 $98.09
---------- --------
10,499,549 $432,320
========== ========
</TABLE>
- --------
(a) Per share plus accrued and unpaid dividends, if any.
The outstanding shares of the $1.425 convertible preferred stock are
convertible at the option of the holders thereof, at any time, into common
stock at the rate of 1.02 shares of common stock for each share of convertible
preferred stock, subject to future adjustment. The convertible preferred stock
may be redeemed by the Company at $42 per share, plus accrued and unpaid
dividends, if any. The involuntary liquidation price of the $1.425 convertible
preferred stock is $31.80 per share, plus accrued and unpaid dividends, if any.
The number of shares of convertible preferred stock converted into common stock
for the three months ended June 30, 1993 and 1994 was 7,389 shares and 85,832
shares,
15
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
respectively, for the six months ended June 30, 1993 and 1994 was 8,422 shares
and 91,474 shares, respectively, and for the twelve months ended June 30, 1993
and 1994 was 9,225 shares and 104,994 shares, respectively.
(7) PREFERENCE STOCK SUBJECT TO MANDATORY REDEMPTION REQUIREMENTS. During
the twelve months ended June 30, 1993, 700,000 shares of preference stock
subject to mandatory redemption requirements were issued. During the twelve
months ended June 30, 1994, no shares of preference stock subject to mandatory
redemption requirements were issued. The series of preference stock subject to
mandatory redemption requirements outstanding at June 30, 1994 are summarized
as follows:
<TABLE>
<CAPTION>
SHARES AGGREGATE
SERIES OUTSTANDING STATED VALUE OPTIONAL REDEMPTION PRICE(A)
-------------- ----------- ------------ -------------------------------------------------
(THOUSANDS
OF DOLLARS)
<C> <C> <C> <S>
$8.20 321,420 $ 32,142 $103 through October 31, 1997; and $101
thereafter
$8.40 Series B 390,000 38,737 $101
$8.85 375,000 37,500 $103 through July 31, 1998; and $101 thereafter
$9.25 825,000 82,500 $103 through July 31, 1999; and $101 thereafter
$9.00 650,000 64,431 Non-callable
$6.875 700,000 69,475 Non-callable
--------- --------
3,261,420 $324,785
========= ========
</TABLE>
- --------
(a) Per share plus accrued and unpaid dividends, if any.
The annual sinking fund requirements and sinking fund and involuntary
liquidation prices per share of the outstanding series of preference stock
subject to mandatory redemption requirements are summarized as follows:
<TABLE>
<CAPTION>
SINKING INVOLUNTARY
FUND LIQUIDATION
SERIES ANNUAL SINKING FUND REQUIREMENT PRICE(A) PRICE(A)
-------------- ----------------------------------- -------- -----------
<S> <C> <C> <C>
$8.20 35,715 shares $100 $100.00
$8.40 Series B 30,000 shares(b) $100 $ 99.326
$8.85 37,500 shares $100 $100.00
$9.25 75,000 shares $100 $100.00
$9.00 130,000 shares beginning in 1996(b) $100 $ 99.125
$6.875 (c) $100 $ 99.25
</TABLE>
- --------
(a) Per share plus accrued and unpaid dividends, if any.
(b) The Company has a non-cumulative option to increase the annual sinking
fund payment on each sinking fund redemption date to retire an additional
number of shares, not in excess of the sinking fund requirement, at the
applicable redemption price.
(c) All shares are required to be redeemed on May 1, 2000.
Annual remaining sinking fund requirements through 1998 on preference stock
outstanding at June 30, 1994 will aggregate $14,822,000 in 1994, $17,822,000
in 1995, $30,822,000 in 1996, $30,822,000 in 1997 and $30,822,000 in 1998.
During the twelve months ended June 30, 1993 and 1994, 2,015,072 shares and
612,085 shares, respectively, of preference stock subject to mandatory
redemption requirements were reacquired to meet sinking fund requirements.
Sinking fund requirements due within one year are included in current
liabilities.
On November 1, 1992, the Company redeemed 300,000 shares of its $2.875
Series of preference stock at the optional redemption price of $25 per share
and 75,000 shares of its $11.70 Series of preference stock at the optional
redemption price of $100 per share, plus accrued and unpaid dividends.
16
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
On June 28, 1993, the Company redeemed the remaining 170,810 shares of its
$2.875 Series of preference stock and all 1,050,000 shares of its $2.375
Series of preference stock, both at the optional redemption price of $25.25
per share, plus accrued and unpaid dividends.
On November 1, 1993, the Company redeemed the remaining 75,000 shares of its
$11.70 Series of preference stock (150,000 shares had been redeemed on August
1, 1993 at the optional redemption price of $105 per share, plus accrued and
unpaid dividends). Of the remaining 75,000 shares, 37,500 shares were redeemed
to meet the November 1, 1993 mandatory sinking fund requirement and 37,500
shares were redeemed as a permitted optional sinking fund payment, both at the
sinking fund redemption price of $100 per share, plus accrued and unpaid
dividends.
On November 1, 1993, the Company redeemed all 210,000 shares of its $9.30
Series of preference stock, of which 70,000 shares were redeemed at the
optional redemption price of $101.03 per share, plus accrued and unpaid
dividends, 70,000 shares were redeemed to meet the November 1, 1993 mandatory
sinking fund requirement and 70,000 shares were redeemed as a permitted
optional sinking fund payment, the latter two at the sinking fund redemption
price of $100 per share, plus accrued and unpaid dividends.
(8) LONG-TERM DEBT. Sinking fund requirements and scheduled maturities
remaining through 1998 for first mortgage bonds, sinking fund debentures and
other long-term debt outstanding at June 30, 1994, after deducting sinking
fund debentures reacquired for satisfaction of future sinking fund
requirements, are summarized as follows: 1994--$161,630,000; 1995--
$493,886,000; 1996--$231,444,000; 1997--$606,697,000; and 1998--$350,027,000.
Other long-term debt outstanding at June 30, 1994 is summarized as follows:
<TABLE>
<CAPTION>
PRINCIPAL
DEBT SECURITY AMOUNT INTEREST RATE PROVISIONS
- ------------------------ ----------- ------------------------------------------------------------
(THOUSANDS
OF DOLLARS)
<S> <C> <C>
Notes:
Medium Term Notes,
Series 1N due
various dates through
April 1, 1998 $ 82,500 Interest rates ranging from 9.27% to 10.48%
Medium Term Notes,
Series 2N due
various dates through
July 1, 1996 29,000 Interest rates ranging from 9.58% to 9.874%
Medium Term Notes,
Series 3N due
various dates through
October 15, 2004 399,000 Interest rates ranging from 8.77% to 9.20%
Medium Term Notes,
Series 4N due
various dates through
May 15, 1997 120,000 Interest rates ranging from 8.01% to 8.875%
Notes due July 15, 1995 100,000 Fixed interest rate of 5.50%
Notes due February 15,
1997 150,000 Fixed interest rate of 7.00%
Notes due July 15, 1997 100,000 Fixed interest rate of 6.50%
Notes due October 15,
2005 235,000 Fixed interest rate of 6.40%
----------
$1,215,500
----------
Long-Term Notes Payable
to Banks:
Note due January 9,
1995 $ 100,000 Prevailing interest rate of 3.9375% at June 30, 1994
Notes due July 31, 1995 150,000 Prevailing interest rates averaging 4.875% at June 30, 1994
Note due June 1, 1997 62,300 Prevailing interest rates averaging 5.5345% at June 30, 1994
----------
$ 312,300
----------
Purchase Contract Obli-
gations:
Woodstock due January
2, 1997 $ 273 Fixed interest rate of 4.50%
Hinsdale due April 30,
2005 513 Fixed interest rate of 3.00%
----------
$ 786
----------
$1,528,586
==========
</TABLE>
17
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
Long-term debt maturing within one year has been included in current
liabilities.
The Company's outstanding first mortgage bonds are secured by a lien on
substantially all property and franchises, other than expressly excepted
property, owned by the Company.
(9) LINES OF CREDIT. The Company had total bank lines of credit of
approximately $981 million and unused bank lines of credit of approximately
$975 million at June 30, 1994. Of that amount, $975 million (of which $175
million expires on October 3, 1994, $40 million expires in equal quarterly
installments commencing on December 31, 1994 and ending on September 30, 1996,
$188 million expires in equal quarterly installments commencing on December 31,
1995 and ending on September 30, 1997 and $572 million expires in equal
quarterly installments commencing on December 31, 1996 and ending on September
30, 1998) may be borrowed on secured or unsecured notes of the Company at
various interest rates. The interest rate is set at the time of a borrowing and
is based on several floating rate bank indices plus a spread which is dependent
upon the Company's credit ratings, or on a prime interest rate. Amounts under
the remaining lines of credit may be borrowed at prevailing prime interest
rates on unsecured notes of the Company. Collateral, if required for the
borrowings, would consist of first mortgage bonds issued under and in
accordance with the provisions of the Company's mortgage. The Company is
obligated to pay commitment fees with respect to $975 million of such lines of
credit.
(10) DISPOSAL OF SPENT NUCLEAR FUEL. Under the Nuclear Waste Policy Act of
1982, the DOE is responsible for the selection and development of repositories
for, and the disposal of, spent nuclear fuel and high-level radioactive waste.
The Company, as required by that Act, has signed a contract with the DOE to
provide for the disposal of spent nuclear fuel and high-level radioactive waste
from the Company's nuclear generating stations beginning not later than January
1998. The contract with the DOE requires the Company to pay the DOE a one-time
fee applicable to nuclear generation through April 6, 1983 of approximately
$277 million, with interest to date of payment, and a fee payable quarterly
equal to one mill per kilowatthour of nuclear-generated and sold electricity
after April 6, 1983. The Company has elected to pay the one-time fee, with
interest, just prior to the first scheduled delivery of spent nuclear fuel to
the DOE, which is scheduled to occur not later than January 1998; however, this
delivery schedule is expected to be delayed significantly. The Company has
recorded the liability for the one-time fee and the related interest in its
Consolidated Balance Sheets.
(11) FAIR VALUE OF FINANCIAL INSTRUMENTS. The following methods and
assumptions were used to estimate the fair value of financial instruments held
by or issued and outstanding by the companies. The disclosure of such
information does not purport to be a market valuation of the companies as a
whole. The impact of any realized or unrealized gains or losses related to such
financial instruments on the companies' financial position or results of
operations is dependent on the treatment authorized under future ratemaking
proceedings.
18
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
Investments. Securities included in nuclear decommissioning funds have been
classified and accounted for as "available for sale" securities. The estimated
fair value of the nuclear decommissioning funds, as determined by the Trustee,
is based on published market data. The net earnings of the nuclear
decommissioning funds, which are recorded as increases to the accumulated
provision for depreciation (only the realized portion prior to January 1,
1994), for the three months, six months and twelve months ended June 30, 1993
and 1994 were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30 JUNE 30 JUNE 30
-------------------- -------------------- --------------------
1993 1994 1993 1994 1993 1994
--------- --------- --------- --------- --------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Gross proceeds from
sales of securities.... $ 127,220 $ 157,369 $ 243,504 $ 335,029 $ 365,802 $ 480,210
Less cost based on spe-
cific identification... (124,478) (158,754) (239,032) (332,329) (357,088) (471,031)
--------- --------- --------- --------- --------- ---------
Realized gains (losses)
on sales of securities. $ 2,742 $ (1,385) $ 4,472 $ 2,700 $ 8,714 $ 9,179
Other realized fund
earnings net of ex-
penses................. 8,366 9,188 15,419 17,629 28,488 32,089
--------- --------- --------- --------- --------- ---------
Total realized net earn-
ings of the funds...... $ 11,108 $ 7,803 $ 19,891 $ 20,329 $ 37,202 $ 41,268
Unrealized gains (loss-
es).................... 8,339 (4,243) 19,266 (48,453) 26,593 (36,750)
--------- --------- --------- --------- --------- ---------
Total net earnings
(losses) of the funds. $ 19,447 $ 3,560 $ 39,157 $ (28,124) $ 63,795 $ 4,518
========= ========= ========= ========= ========= =========
</TABLE>
Financial instruments included in other investments at a cost of
approximately $4 million at December 31, 1993 and June 30, 1994, are not
material in relation to other financial instruments of the companies;
therefore, an estimate of the fair value of these instruments has not been
made.
Current Assets. Cash, temporary cash investments and other cash investments,
which include U.S. Government Obligations and other short-term marketable
securities, and special deposits, which primarily includes cash deposited for
the redemption, refund or discharge of debt securities, are stated at cost,
which approximates their fair value because of the short maturity of these
instruments. The securities included in these categories have been classified
as "available for sale" securities.
Capitalization. The estimated fair values of preferred and preference stocks
(without and subject to mandatory redemption requirements) and long-term debt,
including the current portions thereof, have been obtained from an independent
consultant. Estimated fair values exclude accrued interest and preferred and
preference stock dividends. Long-term notes payable to banks in the amounts of
$250 million and $312.3 million at December 31, 1993 and June 30, 1994,
respectively, for which interest is paid at prevailing rates, are included in
the financial statements at cost, which approximates their fair value. Purchase
contract obligations included in long-term debt at a cost of approximately $1
million at December 31, 1993 and June 30, 1994, are not material in relation to
other financial instruments of the companies; therefore, an estimate of the
fair value of these instruments has not been made.
Current Liabilities. The carrying value of notes payable, which consists of
bank loans maturing within one year, approximates their fair value because of
the short maturity of these instruments. See "Capitalization" above for a
discussion of the fair value of the current portion of long-term debt and
redeemable preference stock.
Other Noncurrent Liabilities. The carrying value of accrued spent nuclear
fuel disposal fee and related interest represents the settlement value as of
December 31, 1993 and June 30, 1994; therefore, the carrying value is equal to
the fair value.
19
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
The estimated fair values of the companies' financial instruments other than
those instruments reflected in the financial statements at cost which
approximates fair value, as of January 1, 1994 and June 30, 1994, are as
follows:
<TABLE>
<CAPTION>
JANUARY 1, 1994 JUNE 30, 1994
-------------------------------- ------------------------------------
UNREALIZED UNREALIZED
COST BASIS GAINS FAIR VALUE COST BASIS GAINS (LOSSES) FAIR VALUE
---------- ---------- ---------- ---------- -------------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Nuclear Decommissioning
Funds:
Short-term investments. $ 22,030 $ 4 $ 22,034 $ 23,657 $ 6 $ 23,663
U.S. Government and
Agency issues......... 25,113 14 25,127 59,755 (2,239) 57,516
Municipal bonds........ 598,559 49,851 648,410 506,241 10,049 516,290
Common stock........... 48,282 10,974 59,256 218,850 2,881 221,731
Other.................. 12,857 1,139 13,996 14,897 2,833 17,730
---------- -------- ---------- ---------- --------- ----------
Total................ $ 706,841 $ 61,982 $ 768,823 $ 823,400 $ 13,530 $ 836,930
========== ======== ========== ========== ========= ==========
<CAPTION>
JANUARY 1, 1994 JUNE 30, 1994
-------------------------------- ------------------------------------
CARRYING UNREALIZED CARRYING UNREALIZED
VALUE LOSSES FAIR VALUE VALUE (GAINS) FAIR VALUE
---------- ---------- ---------- ---------- -------------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Capitalization
(including current
portion):
Preferred and
Preference Stocks
(without and subject
to mandatory
redemption
requirements)......... $ 769,098 $ 7,015 $ 776,113 $ 763,321 $ (47,879) $ 715,442
Long-Term Debt......... $7,746,734 $412,241 $8,158,975 $7,609,488 $(281,544) $7,327,944
</TABLE>
At June 30, 1994, the debt securities held by the nuclear decommissioning
funds had the following maturities:
<TABLE>
<CAPTION>
COST BASIS FAIR VALUE
------------------------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Within 1 year....................................... $ 23,657 $ 23,663
1 through 5 years................................... 30,185 30,509
5 through 10 years.................................. 178,621 186,035
Over 10 years....................................... 360,984 360,962
</TABLE>
(12) PENSION BENEFITS. The companies have non-contributory defined benefit
pension plans which cover all regular employees. Benefits under these plans
reflect each employee's compensation, years of service and age at retirement.
Funding is based upon actuarially determined contributions that take into
account the amount deductible for income tax purposes and the minimum
contribution required under the Employee Retirement Income Security Act of
1974, as amended. The December 31, 1993 and June 30, 1994 pension disclosures
and related data were estimated pending completion of the January 1, 1994
actuarial valuation.
During 1992, the companies implemented a workforce reduction program designed
to reduce the management workforce. This program included an early retirement
program and voluntary and involuntary separation plans. The early retirement
program resulted in the recognition during the second half of 1992 of an
additional $26 million of pension cost and an increase to the projected benefit
obligation of that $26 million plus an additional $39 million of unrecognized
net loss. The companies also recognized in 1992 a charge to expense of $11
million primarily related to the cost of the separation plans. The total charge
to income of $37 million in 1992 was approximately $23 million after reflecting
income tax effects.
During 1994, the companies implemented an early retirement program for
employees eligible to retire or who would become eligible to retire after
December 31, 1993 and before April 1, 1995. During the first quarter of 1994,
358 employees accepted the program, resulting in the recognition of an
additional $16 million of pension cost in the three months ended March 31, 1994
and an increase to the projected benefit obligation of that $16 million and an
additional $24 million of unrecognized net loss.
20
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
During the second quarter of 1994, 270 employees accepted the program,
resulting in the recognition of an additional $16 million of pension cost in
the three months ended June 30, 1994 and an increase to the projected benefit
obligation of that $16 million and an additional $15 million of unrecognized
net loss. The charge to income after reflecting income tax effects was
approximately $10 million for the three months ended June 30, 1994 and $19
million for the six months and twelve months ended June 30, 1994. It is
estimated that in total approximately 700 employees will accept the early
retirement program, resulting in the recognition of a total of $35 million of
pension cost and a total increase to the projected benefit obligation of that
$35 million and an additional $42 million of unrecognized net loss.
The funded status of these plans at December 31, 1993 and June 30, 1994 was
as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1993 1994
------------ -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Actuarial present value of accumulated pension plan
benefits:
Vested benefit obligation......................... $(2,350,000) $(2,501,000)
Nonvested benefit obligation...................... (118,000) (121,000)
----------- -----------
Accumulated benefit obligation.................... $(2,468,000) $(2,622,000)
Effect of projected future compensation levels.... (477,000) (475,000)
----------- -----------
Projected benefit obligation...................... $(2,945,000) $(3,097,000)
Fair value of plan assets, invested primarily in
equity index funds, other managed equity and fixed
income investments, U.S. Government, government-
sponsored corporation and agency securities and
listed corporate obligations...................... 2,742,000 2,568,000
----------- -----------
Plan assets less than projected benefit obligation. $ (203,000) $ (529,000)
Unrecognized prior service cost.................... 24,000 23,000
Unrecognized transition asset...................... (168,000) (162,000)
Unrecognized net loss.............................. 130,000 394,000
----------- -----------
Accrued pension liability......................... $ (217,000) $ (274,000)
=========== ===========
</TABLE>
At December 31, 1993 and June 30, 1994, the assumed discount rate was 7.5%
and the assumed annual rate of increase in future compensation levels was 4.0%.
These rates were used in determining the projected benefit obligations, the
accumulated benefit obligations and the vested benefit obligations.
Pension costs were determined under the rules prescribed by SFAS No. 87,
including the use of the projected unit credit actuarial cost method and the
following actuarial assumptions for periods during 1992, 1993 and 1994:
<TABLE>
<CAPTION>
1992 1993 1994
----- ----- -----
<S> <C> <C> <C>
Annual discount rate.......................................... 7.50% 7.50% 7.50%
Annual rate of increase in future compensation levels......... 4.00% 4.00% 4.00%
Annual long-term rate of return on plan assets................ 9.50% 9.50% 9.50%
</TABLE>
21
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
The components of pension costs, portions of which were recorded as
components of construction costs, for the three months, six months and twelve
months ended June 30, 1993 and 1994 were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30 JUNE 30 JUNE 30
--------------------- ---------------------- ----------------------
1993 1994 1993 1994 1993 1994
---------- ---------- ----------- ---------- ---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Service cost............ $ 25,000 $ 25,000 $ 50,000 $ 50,000 $ 98,000 $ 96,000
Interest cost on pro-
jected benefit obliga-
tion................... 52,000 54,000 104,000 108,000 201,000 208,000
Actual loss/(return) on
plan assets............ (57,000) 19,000 (182,000) 99,000 (359,000) (29,000)
Early retirement program
cost................... -- 16,000 -- 32,000 26,000 32,000
Net amortization and de-
ferral................. (5,000) (85,000) 57,000 (232,000) 111,000 (228,000)
-------- --------- --------- --------- --------- ---------
$ 15,000 $ 29,000 $ 29,000 $ 57,000 $ 77,000 $ 79,000
======== ========= ========= ========= ========= =========
</TABLE>
In addition, the companies provide an employe savings and investment plan
available to all regular employees who have completed three months of service.
Each participating employee may contribute up to 20% of such employee's base
pay and the companies match such contribution equal to 70% of up to the first
5% of contributed base salary. The companies' contributions for the three
months ended June 30, 1993 and 1994 were $5,893,000 and $5,324,000,
respectively, for the six months ended June 30, 1993 and 1994 were $10,925,000
and $11,391,000, respectively, and for the twelve months ended June 30, 1993
and 1994 were $22,252,000 and $22,414,000, respectively.
(13) POSTRETIREMENT HEALTH CARE BENEFITS. The companies provide certain
postretirement health care benefits for retirees and their dependents and for
the surviving dependents of eligible employees and retirees. Substantially all
of the companies' employees become eligible for postretirement health care
benefits when they reach retirement age while working for the companies. The
companies fund the liability for postretirement health care benefits through a
trust fund. Funding is based upon actuarially determined contributions that
take into account the amount deductible for income tax purposes. The December
31, 1993 and June 30, 1994 postretirement health care disclosures and the
related disclosures for 1994 periods were estimated pending completion of the
January 1, 1994 actuarial valuation.
On January 1, 1993, the companies adopted SFAS No. 106, Employers' Accounting
for Postretirement Benefits Other Than Pensions, which requires that
postretirement benefits be determined based on the projected unit credit
actuarial cost method and attributed over employment periods of plan
participants to the date of eligibility for postretirement benefits. By
adopting the new standard in January 1993, the companies estimate that for the
year ended December 31, 1993, postretirement costs increased $20 million,
resulting in a decrease in net income of $10 million or $0.05 per common share,
net of income taxes and the portion of the costs charged to construction. The
ultimate effects on income are dependent on the treatment authorized in future
ratemaking proceedings. Prior to the adoption of SFAS No. 106, the companies
had accounted for postretirement health care benefits on an accrual basis under
the aggregate cost method and accrual basis costs have been reflected in rates
in ratemaking proceedings. The transition obligation shown in the following
schedule is being amortized over 20.6 years.
22
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
The funded status of the plan at December 31, 1993 and June 30, 1994 was as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1993 1994
------------ -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Actuarial present value of accumulated
postretirement health care obligation:
Retirees........................................... $ (444,000) $ (463,000)
Active fully eligible participants................. (65,000) (67,000)
Other participants................................. (586,000) (612,000)
----------- -----------
Accumulated benefit obligation..................... $(1,095,000) $(1,142,000)
Fair value of plan assets, invested primarily in S&P
500 common stocks, equity and fixed income mutual
funds, and U.S. Government and listed corporate ob-
ligations.......................................... 457,000 422,000
----------- -----------
Plan assets less than accumulated postretirement
health care obligation............................. $ (638,000) $ (720,000)
Unrecognized transition obligation.................. 559,000 545,000
Unrecognized net loss (gain)........................ (8,000) 29,000
----------- -----------
Accrued liability for postretirement health care.... $ (87,000) $ (146,000)
=========== ===========
</TABLE>
For 1993 and 1994, different health care cost trends are used for pre-
Medicare and post-Medicare expenses. Pre-Medicare trend rates are 14.5% for
1993 grading down in 0.5% annual increments to 5%. Post-Medicare trend rates
are 12% for 1993 grading down in 0.5% annual increments to 5%. The effect of a
1% increase in the assumed health care cost trend rates for each future year
would increase the accumulated postretirement health care obligation at January
1, 1994 by approximately $211 million and increase the aggregate of the service
and interest cost components of plan costs by approximately $7 million for the
three months ended June 30, 1994, $14 million for the six months ended June 30,
1994 and $27 million for the twelve months ended June 30, 1994. The annual
discount rate used was 7.5% and the annual long-term rate of return on plan
assets was 9.5%, or 9.1% for 1993 periods and 9.04% for 1994 periods after
including income tax effects.
The components of postretirement health care costs, portions of which were
recorded as components of construction costs, for the three months and six
months ended June 30, 1993 and 1994, and the twelve months ended June 30, 1994
were as follows:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30 JUNE 30 JUNE 30
----------------- ------------------ -------------------
1993 1994 1993 1994 1994
------- -------- -------- -------- -------------------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Service cost............ $12,000 $ 12,000 $ 24,000 $ 24,000 $ 45,000
Interest cost on accumu-
lated benefit obliga-
tion................... 20,000 21,000 39,000 41,000 76,000
Actual loss/(return) on
plan assets............ (8,000) 4,000 (27,000) 19,000 4,000
Amortization of transi-
tion obligation........ 8,000 7,000 16,000 14,000 27,000
Net amortization and de-
ferral................. -- (14,000) 11,000 (39,000) (40,000)
------- -------- -------- -------- --------
$32,000 $ 30,000 $ 63,000 $ 59,000 $112,000
======= ======== ======== ======== ========
</TABLE>
23
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(14) INCOME TAXES. The components of the net deferred income tax liability at
December 31, 1993 and June 30, 1994 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1993 1994
----------- ----------
(THOUSANDS OF
DOLLARS)
<S> <C> <C>
Deferred income tax liabilities:
Accelerated cost recovery and liberalized deprecia-
tion, net of removal costs........................... $3,095,855 $3,173,720
Overheads capitalized................................. 286,287 274,008
Repair allowance...................................... 210,302 201,277
Regulatory assets recoverable through future rates.... 1,863,587 1,838,511
Deferred income tax assets:
Postretirement benefits............................... (134,590) (164,006)
Unbilled revenues..................................... (98,164) (97,448)
Loss carryforward..................................... (175,197) (131,264)
Alternative minimum tax............................... (137,328) (191,636)
Unamortized investment tax credits to be settled
through future rates................................. (489,891) (480,429)
Other regulatory liabilities to be settled through fu-
ture rates........................................... (236,236) (235,346)
Other--net............................................ (80,751) (120,706)
---------- ----------
Net deferred income tax liability...................... $4,103,874 $4,066,681
========== ==========
</TABLE>
The $37 million decrease in the net deferred income tax liability from December
31, 1993 to June 30, 1994 is comprised of a $22 million net decrease to
deferred income tax expense and a $15 million decrease in regulatory assets net
of regulatory liabilities pertaining to income taxes for the period.
The components of net income tax expense charged to continuing operations are
as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30 JUNE 30 JUNE 30
------------------- ------------------ --------------------
1993 1994 1993 1994 1993 1994
--------- --------- -------- -------- --------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Electric operating in-
come:
Current income taxes... $37,440 $ 22,932 $ 88,886 $ 58,292 $186,936 $(58,146)
Deferred income taxes.. 5,254 (3,821) 864 (3,428) 98,912 118,510
Investment tax credits
deferred--net......... (7,299) (7,201) (14,613) (14,425) (29,098) (29,236)
Other (income) and de-
ductions............... (683) (23,465) (6,195) (20,838) (7,339) (45,720)
------- -------- ------- -------- -------- --------
Net income taxes charged
to continuing opera-
tions.................. $34,712 $(11,555) $ 68,942 $ 19,601 $249,411 $(14,592)
======= ======== ======== ======== ======== ========
</TABLE>
Provisions for current and deferred federal and state income taxes and
amortization of investment tax credits resulted in the following effective
income tax rates for the three months, six months and twelve months ended June
30, 1993 and 1994:
<TABLE>
<CAPTION>
TWELVE MONTHS
THREE MONTHS ENDED SIX MONTHS ENDED ENDED
JUNE 30 JUNE 30 JUNE 30
-------------------- ----------------- ------------------
1993 1994 1993 1994 1993 1994
--------- --------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Pre-tax book income (in
thousands)............. $109,806 $(19,411) $211,510 $63,310 $732,881 $(10,748)
Effective income tax
rate................... 31.6% 59.5% 32.6% 31.0% 34.0% 135.8%
</TABLE>
24
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
The principal differences between net income taxes charged to continuing
operations and the amounts computed at the federal statutory rate of 34% for
the three months, six months and twelve months ended June 30, 1993 and 35% for
the three months, six months and twelve months ended June 30, 1994 were as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30 JUNE 30 JUNE 30
------------------- ------------------ --------------------
1993 1994 1993 1994 1993 1994
--------- --------- -------- -------- --------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Federal income taxes
computed at statutory
rate................... $ 37,334 $ (6,794) $ 71,913 $ 22,159 $ 249,180 $ (3,762)
Equity component of
AFUDC which was
excluded from taxable
income................. (1,663) (1,775) (2,589) (4,349) (6,347) (8,900)
Amortization of invest-
ment tax credits....... (7,283) (7,189) (14,583) (14,412) (26,555) (29,250)
State income taxes, net
of federal income tax-
es..................... 5,941 728 13,056 5,729 39,415 6,007
Differences between book
and tax accounting pri-
marily for property re-
lated deductions....... 749 2,532 (392) 8,819 (2,178) 15,764
Other--net.............. (366) 943 1,537 1,655 (4,104) 5,549
-------- --------- -------- -------- --------- ---------
Net income taxes charged
to continuing opera-
tions.................. $ 34,712 $ (11,555) $ 68,942 $ 19,601 $ 249,411 $ (14,592)
======== ========= ======== ======== ========= =========
</TABLE>
The Company has recorded current federal income tax liabilities that include
excess amounts of alternative minimum tax (AMT) over the regular federal income
tax, which amounts were also recorded as decreases to deferred federal income
taxes. As shown in the first table, the cumulative excess amounts of AMT so
recorded in the amount of approximately $192 million as of June 30, 1994 can be
carried forward indefinitely as a credit against future years' regular federal
income tax liabilities. In 1993, the Company recorded a loss for income tax
purposes which may be carried forward through 2008. It is currently expected
that the income tax effect of the loss carryforward in the amount of $131
million, as shown in the first table, will be utilized by the expiration date.
The Company adopted SFAS No. 109, effective January 1, 1993. SFAS No. 109
requires an asset and liability approach to accounting for income taxes which
replaces the deferred method formerly used. Under the asset and liability
approach, the deferred income tax liability represents the income tax effect of
temporary differences between financial accounting and income tax bases of
assets and liabilities and is determined at the presently enacted income tax
rates. The SFAS No. 109 adjustments to the Company's deferred income tax
liability related to utility operations represents income taxes recoverable or
returnable through future rates and have been recorded as regulatory assets and
regulatory liabilities on the Consolidated Balance Sheets. The cumulative effect
of the change in the method of accounting for income taxes resulted in an
increase to net income for the six months and twelve months ended June 30, 1993
of $9.7 million or $0.05 per common share, due primarily to the reduction of
deferred income taxes on nonregulated activities (primarily nonconsolidated
subsidiaries) accrued in prior years at income tax rates in excess of the
presently enacted income tax rates. The effect of the implementation entry on
regulated activities was to record regulatory assets of $1,546 million primarily
related to the equity component of AFUDC which was recorded on an after-tax
basis, the borrowed funds component of AFUDC which was previously recorded net
of tax and other temporary differences for which the related tax effects were
not previously recorded; regulatory liabilities of $577 million primarily
related to recognition of the deferred income tax effects of unamortized
investment tax credits and to the changes in prior years' income tax rates; and
a net increase to the deferred income tax liability of $969 million.
25
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(15) TAXES, EXCEPT INCOME TAXES. Provisions for taxes, except income taxes,
for the three months, six months and twelve months ended June 30, 1993 and 1994
were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30 JUNE 30 JUNE 30
------------------ ----------------- -------------------
1993 1994 1993 1994 1993 1994
-------- ------- -------- -------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Illinois public utility
revenue................ $ 49,869 $ 47,246 $104,172 $ 99,788 $208,196 $195,114
Illinois invested capi-
tal.................... 27,514 27,076 55,798 54,488 111,761 109,816
Municipal utility gross
receipts............... 29,450 33,155 60,597 68,495 126,956 115,129
Real estate............. 41,132 46,391 82,622 91,022 167,182 170,960
Municipal compensation.. 16,149 16,885 33,403 34,610 70,496 58,085
Other--net.............. 18,674 17,533 36,065 39,956 66,366 68,511
-------- -------- -------- -------- -------- --------
$182,788 $188,286 $372,657 $388,359 $750,957 $717,615
======== ======== ======== ======== ======== ========
</TABLE>
(16) LEASE OBLIGATIONS. On November 23, 1993, the Company consolidated its
nuclear fuel lease arrangements into a new arrangement. Under the new
arrangement, the Company may sell and lease back nuclear fuel from a lessor who
may borrow an aggregate of $700 million (consisting of $300 million of
commercial paper or bank borrowings and $400 million of intermediate term
notes) to finance the transactions. The commercial paper/bank borrowing portion
currently will expire on November 23, 1996, but the Company plans to ask for an
extension of the expiration date. At June 30, 1994, the Company's obligation to
the lessor for leased nuclear fuel amounted to $586 million. The Company has
agreed to make lease payments which cover the amortization of the nuclear fuel
used in the Company's reactors plus the lessor's related financing costs. The
Company has an obligation for spent nuclear fuel disposal costs of leased
nuclear fuel.
Future minimum rental payments, net of executory costs, at June 30, 1994 for
capital leases are estimated to aggregate $653 million, including $142 million
in 1994 (after deducting $117 million for the first six months of 1994), $191
million in 1995, $135 million in 1996, $82 million in 1997, $46 million in 1998
and $57 million in 1999-2002. The estimated interest component of such rental
payments aggregates $63 million. The estimated portions of obligations due
within one year under capital leases are included in current liabilities and
approximated $166 million and $235 million at December 31, 1993 and June 30,
1994, respectively.
Future minimum rental payments at June 30, 1994 for operating leases are
estimated to aggregate $150 million, including $4 million in 1994, $9 million
in 1995, $9 million in 1996, $8 million in 1997, $8 million in 1998 and $112
million in 1999-2024.
(17) INVESTMENTS IN URANIUM-RELATED PROPERTIES. In May 1994, the Company
recorded a reduction in the carrying value of its investments in uranium-
related properties after completing a review of various alternatives and
reassessing the long-term recoverability of those investments. The effects of
the reduction reduced the Company's net income by approximately $33.8 million
or $0.16 per common share.
During 1989 and 1991, actions were brought in federal and state courts in
Colorado against the Company and its subsidiary, Cotter Corporation (Cotter),
alleging that Cotter has permitted radioactive and other hazardous material to
be released from its mill into areas owned or occupied by the plaintiffs
resulting in property damage and potential adverse health effects. The
plaintiffs seek from Cotter and the Company unspecified compensatory, exemplary
and medical monitoring fund damages, unspecified response costs under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
(CERCLA), and temporary and permanent injunctive relief. In February 1994, a
federal jury returned a verdict in favor of eight bellwether plaintiffs in the
total amount of $76,400 in property damages,
26
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
rejecting any award for exemplary or medical monitoring damages. The court also
awarded prejudgment interest in the amount of $61,522. Plaintiffs have
appealed. The remaining cases are not yet scheduled for trial. Although the
cases will necessarily involve the resolution of numerous contested issues of
fact and law, the Company's determination is that these actions will not have a
material adverse impact on the Company's financial statements. See "Part II.
Other Information, Item 1. Legal Proceedings," subcaption "Litigation," for
additional information.
(18) JOINT PLANT OWNERSHIP. The Company has a 75% undivided ownership
interest in the Quad-Cities nuclear generating station. Further, the Company is
responsible for 75% of all costs which are charged to appropriate investment,
operation or maintenance accounts and provides its own financing. At June 30,
1994, for its share of ownership in the station, the Company had an investment
of $536 million in production and transmission plant in service (before
reduction of $163 million for the related accumulated provision for
depreciation) and $68 million in construction work in progress.
(19) COMMITMENTS, CONTINGENT LIABILITIES AND THE CONSTRUCTION PROGRAM.
Purchase commitments, principally related to construction and nuclear fuel,
approximated $1,196 million at June 30, 1994. In addition, the Company has
substantial commitments for the purchase of coal under long-term contracts. The
Company's coal costs are high compared to those of other utilities. The
Company's western coal contracts and its rail contracts for delivery of the
western coal were renegotiated during 1992 effective as of January 1, 1993, to
provide, among other things, for significant reductions in the delivered price
of the coal over the duration of the contracts. However, the renegotiated
contracts provide for the purchase of certain coal at prices substantially
above currently prevailing market prices and the Company has significant
purchase commitments under its contracts. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations," subcaption
"Liquidity and Capital Resources," for additional information regarding the
Company's purchase commitments.
The Company is a member of Nuclear Mutual Limited (NML), established to
provide insurance coverage against property damage to members' nuclear
generating facilities. The members are subject
to a retrospective premium adjustment in the event losses exceed accumulated
reserve funds. Capital has been accumulated in the reserve funds of NML to the
extent that the Company would have no exposure in the event of a single
incident. However, the Company could be subject to a maximum assessment of
approximately $67 million in any policy year, in the event losses exceed
accumulated reserve funds.
If the Company had terminated its insurance coverages with NML as of June 30,
1994, it would have had a right to receive approximately $126 million, payable
over a twenty-year period commencing in 1996. Any unpaid amounts, however, are
subject to forfeiture in the event that, among other factors, NML's aggregate
losses in any subsequent two-year period exceed $300 million or fifty percent
of its surplus. The Company has recorded a noncurrent receivable in its
Consolidated Balance Sheets under deferred charges and other noncurrent assets,
subcaption other, representing its contractual settlement option of
approximately $49 million, which reflects the $126 million discounted at a nine
percent rate over a twenty-year period beginning in 1996. The Company has also
recorded the $49 million as a regulatory liability.
The Company also is a member of Nuclear Electric Insurance Limited (NEIL),
which provides insurance coverage against the cost of replacement power
obtained during certain prolonged accidental outages of nuclear generating
units and coverage for property losses in excess of $500 million occurring at
nuclear stations. All companies insured with NEIL are subject to retrospective
premium adjustments if losses exceed accumulated reserve funds. Capital has
been accumulated in the reserve funds of NEIL to the extent that the Company
would have no exposure in the event of a single incident under the replacement
power coverage and the property damage coverage. However, the Company could be
subject to maximum assessments, in any policy year, of approximately $27
million and $88 million in the
27
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
event losses exceed accumulated reserve funds under the replacement power and
property damage coverages, respectively.
The NRC's indemnity for public liability coverage under the Price-Anderson
Act is supported by a mandatory industry-wide program under which owners of
nuclear generating facilities could be assessed in the event of nuclear
incidents. Based on the number of nuclear reactors with operating licenses, the
Company would currently be subject to a maximum assessment of $991 million in
the event of an incident, limited to a maximum of $125 million in any calendar
year.
In addition, the Company participates in the American Nuclear Insurers and
Mutual Atomic Energy Liability Underwriters Master Worker Program which
provides coverage for worker tort claims filed for bodily injury caused by the
nuclear energy hazard. The coverage applies to workers whose "nuclear related
employment" began after January 1, 1988. The Company would currently be subject
to a maximum assessment of approximately $37 million in the event losses exceed
accumulated reserve funds.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations," subcaption "Liquidity and Capital Resources," for information
relating to the Company's construction program and rates and financial
condition.
Shareholder derivative lawsuits were filed on October 1, 1992 and on April
14, 1993 in the Circuit Court against current and former directors of the
Company alleging that they breached their fiduciary duty and duty of care to
the Company in connection with the management of the activities associated with
the construction of the Company's four most recently completed nuclear
generating units. The lawsuits sought restitution to the Company by the
defendants for unquantified and undefined losses and costs alleged to have been
incurred by the Company. Both lawsuits were dismissed by the Circuit Court;
however, appeals are pending before the Illinois Appellate Court.
The Company is involved in administrative and legal proceedings concerning
air quality, water quality and other matters. The outcome of these proceedings
may require increases in the Company's future construction expenditures and
operating expenses. The Company and its subsidiaries are or are likely to
become parties to proceedings initiated by the United States Environmental
Protection Agency (Federal Agency), state agencies and/or other responsible
parties under CERCLA with respect to a number of sites, including manufactured
gas plant (MGP) sites, or may voluntarily undertake to investigate and
remediate sites for which they may be liable under CERCLA. The Company
generally did not operate MGPs as a corporate entity but did, however, acquire
MGP sites as part of the absorption of smaller utilities and as vacant real
estate on which Company facilities have been constructed. To date, the Company
has identified 44 former MGP sites for which it may be liable for remediation.
The Company presently estimates that its costs of former MGP site investigation
and remediation will aggregate from $25 million to $150 million in current-year
(1994) dollars. It is expected that the costs associated with investigation and
remediation of former MGP sites will be incurred over a period of approximately
20 to 30 years. Because the Company is not able to determine the most probable
liability for such MGP costs, in accordance with accounting standards, the
Company has recorded a reserve as of December 31, 1993 and June 30, 1994 of
approximately $25 million, which reflects the low end of the range of its
estimate of the liability associated with former MGP sites. In addition, as of
December 31, 1993 and June 30, 1994, the Company has recorded a reserve of $5
million and $8 million, respectively, representing its estimate of the
liability associated with cleanup costs of remediation sites other than former
MGP sites. The Company presently estimates that its costs of investigating and
remediating the former MGP and other remediation sites pursuant to CERCLA and
state environmental laws will not have a material impact on the financial
position or results of operations of the Company. These cost estimates are
based on currently
28
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONCLUDED
available information regarding the responsible parties likely to share in the
costs of responding to site contamination, the extent of contamination at sites
for which the investigation has not yet been completed and the cleanup levels
to which sites are expected to have to be remediated.
The Clean Air Act Amendments of 1990 (Amendments) will require reductions in
sulfur dioxide emissions from the Company's Kincaid station. The Amendments
also bar future utility sulfur dioxide emissions except to the extent utilities
hold allowances for their emissions. Allowances which authorize their holder to
emit sulfur dioxide will be issued by the Federal Agency based largely on
historical levels of sulfur dioxide emissions. These allowances will be
transferable and marketable. The Company's ability to increase generation in
the future to meet expected increased demand for electricity will depend in
part on the Company's ability to acquire additional allowances or to reduce
emissions below otherwise allowable levels from its existing generating plants.
In addition, the Amendments require studies to determine what controls, if any,
should be imposed on utilities to control air toxic emissions, including
mercury. The Company's Clean Air Compliance Plan for Kincaid station was
approved by the ICC on July 8, 1993. In late 1993, however, a federal court
declared the Illinois law under which the approval was received to be
unconstitutional and compliance plans prepared and approved in reliance on the
law to be void. Under the Plan approved by the ICC, the Company would have been
allowed to burn low sulfur Illinois coal at Kincaid station without the
installation of pollution control equipment for the years 1995 through 1999,
and to purchase any necessary emission allowances that are expected to be
available under the Amendments during this period. Also, under the Plan, the
Company expected to install pollution control equipment for Kincaid station by
the year 2000. When the final outcome of the federal litigation is known, the
Company will determine whether any changes are required.
The Amendments also will require reductions in nitrogen oxide emissions from
the Company's fossil fuel generating units. The Illinois Environmental
Protection Agency (Illinois Agency) has proposed rules with respect to such
emissions which would require modifications to certain of the Company's boilers
inside the Chicago ozone non-attainment area. The Company's construction
program for the three-year period 1994-96 includes $25 million for such
modifications. The Illinois Agency is also considering nitrogen oxide emission
reductions at Company sources outside the Chicago ozone non-attainment area.
(20) PROPOSED HOLDING COMPANY RESTRUCTURING. At the Company's annual meeting
of shareholders on May 10, 1994, shareholders approved a proposed restructuring
that will result in the formation of a holding company structure for the
Company. The new holding company will be named Unicom Corporation (Unicom). The
Company has obtained necessary federal regulatory approvals from the NRC, the
FERC and the SEC and expects to complete the restructuring by year-end 1994. As
a result of the restructuring, the Company and its wholly-owned subsidiary,
Unicom Enterprises Inc., will become separate wholly-owned subsidiaries of
Unicom.
On June 9, 1994, the Board of Directors of the Company declared a dividend of
$50 million on the common stock of the Company, in addition to the regular
quarterly dividend. The dividend will be paid to Unicom immediately following
the formation of the holding company structure. The dividend was recorded as a
reduction to retained earnings and an increase to dividends payable in the
Consolidated Balance Sheets as of June 30, 1994.
(21) SUBSEQUENT EVENTS. On July 1, 1994, the Company issued $55 million of
long-term notes payable to banks at a variable interest rate. The long-term
notes are due June 1, 1997.
On July 7, 1994, the Company issued and sold 3,000,000 shares of $2.425
Cumulative Preference Stock for $72,637,500.
On August 1, 1994, the Company issued $32.7 million of long-term notes
payable to banks at a variable interest rate. The long-term notes are due June
1, 1997.
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Capital Budgets. Commonwealth Edison Company (Company) and its electric
utility subsidiary, Commonwealth Edison Company of Indiana, Inc. (collectively,
companies), have a construction program for the three-year period 1994-96 which
consists principally of improvements to the companies' existing nuclear and
other electric production, transmission and distribution facilities. It does
not include funds (other than for planning) to add new generating capacity to
the Company's system. The program, as approved by the Company in January 1994,
calls for electric plant and equipment expenditures of approximately $2,450
million (excluding nuclear fuel expenditures of approximately $780 million).
This amount reflects a decrease of approximately $200 million compared with the
common years (1994-95) of the previously approved construction program. In
part, the decrease reflects a reduction in capital spending announced by the
Company in July 1992 due to adverse financial circumstances. For additional
information concerning the cost reduction plan, see "Rates and Financial
Condition" below. It is estimated that such construction expenditures, with
cost escalation computed at 4% annually, will be as follows:
<TABLE>
<CAPTION>
THREE-YEAR
1994 1995 1996 TOTAL
---- ---- ---- ----------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C>
Production......................................... $295 $310 $250 $ 855
Transmission and Distribution...................... 340 445 505 1,290
General............................................ 115 95 95 305
---- ---- ---- ------
Total.......................................... $750 $850 $850 $2,450
==== ==== ==== ======
</TABLE>
The Company's forecasts of peak load indicate a need for additional resources
to meet demand, either through generating capacity or through equivalent
purchased power or demand-side management resources, in 1997 and each year
thereafter through the year 2000. The projected resource needs reflect the
current planning reserve margin recommendations of the Mid-America
Interconnected Network, the reliability council of which the Company is a
member. The Company's forecasts indicate that the need for additional resources
during this period would exist only during the summer months. The Company does
not expect to make expenditures for additional capacity to the extent the need
for capacity can be met through cost-effective demand-side management
resources, non-utility generation or other power purchases. To assess the
market potential to provide such cost-effective resources, the Company
solicited proposals to supply it with cost-effective demand-side management
resources, non-utility generation resources and other-utility power purchases
sufficient to meet forecasted requirements through the year 2000. The responses
to the solicitation suggest that adequate resources to meet the Company's needs
could be obtained from those sources but the Company has not yet determined
whether those sources represent the most economical alternative. If the Company
were to build additional capacity to meet its needs, it would need to make
additional expenditures during the 1994-96 period.
The Company has not budgeted for a number of projects, particularly at
generating stations, which could be required, but which the Company does not
expect to be required during the budget period. In particular, the Company has
not budgeted for the construction of scrubbers at its Kincaid station, for the
replacement of major amounts of piping at its boiling water reactor nuclear
stations or for the replacement of steam generators at its pressurized water
reactor nuclear stations. See "Regulation" below and "Part II. Other
Information, Item 1. Legal Proceedings," subcaption "Nuclear Matters," herein
for additional information.
30
<PAGE>
Purchase commitments, principally related to construction and nuclear fuel,
approximated $1,196 million at June 30, 1994. In addition, the Company has
substantial commitments for the purchase of coal under the long-term contracts
indicated in the following table as well as various short-term commitments.
<TABLE>
<CAPTION>
CONTRACT PERIOD COMMITMENT(1)
-------- --------- -------------
<S> <C> <C>
Black Butte Coal Co. ............................. 1994-2007 $1,168
Decker Coal Co. .................................. 1994-2015 $ 865
Big Horn Coal Co. ................................ 1998 $ 21
Various short-term................................ 1994 $ 11
</TABLE>
--------
(1) Estimated costs in millions of dollars FOB mine. No estimate of
future escalation has been made.
For additional information concerning these coal contracts and the Company's
fuel supply, see "Results of Operations" below and Notes 1 and 19 of Notes to
Financial Statements.
The construction program will be reviewed and modified as necessary to adapt
to changing economic conditions, rate levels and other relevant factors
including changing business and legal needs and requirements. The Company
cannot anticipate all such possible needs and requirements. While regulatory
needs in particular are more likely, on balance, to require increases in
construction expenditures than decreases, the Company's financial condition may
require compensating or greater reductions in other construction expenditures.
See "Rates and Financial Condition" below and "Part II. Other Information, Item
1. Legal Proceedings" for additional information concerning the construction
program.
Capital Resources. The Company has forecast that internal sources will
provide approximately one-half of the funds required for its construction
program and other capital requirements, including nuclear fuel expenditures,
contributions to nuclear decommissioning trusts, sinking fund obligations and
refinancing of scheduled debt maturities (the annual sinking fund requirements
for preference stock and long-term debt are summarized in Notes 7 and 8 of
Notes to Financial Statements). The forecast assumes the rate levels reflected
in the Rate Matters Settlement (described below), and reflects the payments
required to be made to customers under the Rate Matters Settlement and the Fuel
Matters Settlement (described below).
The type and amount of external financing will depend on financial market
conditions and the needs and capital structure of the Company at the time of
such financing. The Company's new money financing requirements have increased
in recent years due to higher expenditures and lower operating cash flows
resulting from reduced revenues due to customer refunds and rate level
adjustments ordered in various proceedings related to the level of the
Company's rates and the effect of the Rate Matters Settlement and the Fuel
Matters Settlement. See "Rates and Financial Condition" below regarding the
Company's actions to reduce operation and maintenance expenses and its
construction program expenditures in response to adverse regulatory and
judicial decisions. A portion of the Company's financing is expected to be
provided through the continued sale and leaseback of nuclear fuel. The Company
has $975 million of unused bank lines of credit at June 30, 1994 which may be
borrowed at various interest rates and which may be secured or unsecured. The
interest rate is set at the time of a borrowing and is based on several
floating rate bank indices plus a spread which is dependent upon the Company's
credit ratings or on a prime interest rate. Collateral, if required for the
borrowings, would consist of first mortgage bonds issued under and in
accordance with the provisions of the Company's mortgage. See Note 9 of Notes
to Financial Statements for information concerning lines of credit. See the
Statements of Consolidated Cash Flows for the construction expenditures and
cash flow from operating activities for the three months, six months and twelve
months ended June 30, 1994.
During the first six months of 1994, the Company issued an aggregate of
220,310 shares of common stock for approximately $5,055,000 under its employe
stock plans; sold and leased back an aggregate of approximately $168,020,000 of
nuclear fuel; issued $66,000,000 aggregate principal amount of first
31
<PAGE>
mortgage bonds in connection with the refinancing of certain outstanding
pollution control bonds; and issued $212,300,000 of other long-term debt. On
July 1, 1994 and August 1, 1994, the Company issued $55,000,000 and
$32,700,000, respectively, of long-term notes payable to banks. On July 7,
1994, the Company issued and sold 3,000,000 shares of $2.425 Cumulative
Preference Stock.
As of August 9, 1994, the Company has an effective "shelf" registration
statement with the Securities and Exchange Commission (SEC) for the future sale
of up to an additional $805 million of debt securities and cumulative
preference stock for general corporate purposes of the Company, including the
discharge or refund of other outstanding securities.
Rates and Financial Condition. The Company's financial condition is dependent
upon its ability to generate revenues to cover its costs. To maintain a
satisfactory financial condition, the Company must recover the costs of and a
return on completed construction projects, including its three most recently
completed generating units, and maintain adequate debt and preferred and
preference stock coverages and common stock equity earnings. The Company has no
significant revenues other than from the sale of electricity. Under the
economic and political conditions prevailing in Illinois, the Company's
management recognizes that competitive and regulatory circumstances may limit
the Company's ability to raise its rates. Therefore, the Company's financial
condition will depend in large measure on the Company's levels of sales,
expenses and capital expenditures. See "Business and Competition" below.
In response to adverse regulatory and judicial decisions in proceedings
relating to the level of the Company's rates, the Company implemented a cost
reduction plan in 1992 involving various management workforce reductions
through early retirement and voluntary and involuntary separations. Such
reductions, when combined with other actions, are estimated by the Company to
have saved approximately $130 million in operation and maintenance expenses
during 1993. The management workforce reduction resulted in a charge to income
of approximately $23 million (net of income tax effects) in the second half of
1992. In addition, the Company reached agreement in August 1993 with its unions
regarding certain cost reduction actions. The agreement provided for a wage
freeze until April 1, 1994, changes to reduce health care plan cost, increased
use of part-time employment and changes in holiday provisions. The agreement
also included a continuation of negotiations relative to other issues. Further,
the Company has reduced planned construction program expenditures by
approximately $200 million compared with the common years (1994-95) of the
previously approved construction program. See "Rate Proceedings" below and Note
12 of Notes to Financial Statements.
The Company and union representatives reached agreement in February 1994 and
announced an offer of a voluntary early retirement program. This program is
available to management, non-union and union employees eligible to retire or
who would become eligible to retire after December 31, 1993 and before April 1,
1995. The period for most eligible employees to elect to participate in the
program expired on April 20, 1994. The charge to income related to the program
in the first quarter of 1994 of approximately $9 million (net of income tax
effects) related to employees who accepted the program during the first
quarter. The charge to income related to the program in the second quarter of
1994 of approximately $10 million (net of income tax effects) related to
employees who accepted the program during the second quarter. The Company
estimates that, in total, approximately $21 million (net of income tax effects)
will be charged to income as a result of the program. See Note 12 of Notes to
Financial Statements.
In addition, the quarterly common stock dividends, payable on and since
November 1, 1992 were reduced by 47% from the seventy-five cents per share
amount paid quarterly since 1982 to forty cents per share. Dividends have been
declared on the outstanding shares of the Company's preferred and preference
stocks at their regular quarterly rates. The Company's Board of Directors will
continue to review quarterly the payment of dividends.
32
<PAGE>
The current ratings of the Company's securities by three principal securities
rating agencies are as follows:
<TABLE>
<CAPTION>
STANDARD DUFF &
MOODY'S & POOR'S PHELPS
------- -------- ------
<S> <C> <C> <C>
First mortgage and secured pollution control
bonds........................................... Baa2 BBB BBB
Publicly-held debentures and unsecured pollution
control obligations............................. Baa3 BBB- BBB-
Convertible preferred stock...................... baa3 BBB- BB+
Preference stock................................. baa3 BBB- BB+
Commercial paper................................. P-2 A-2 Duff 2
</TABLE>
The foregoing ratings reflect downgradings during 1992 and in January 1993 as
a result of developments in the proceedings leading to, and the issuance of,
the Illinois Commerce Commission (ICC) rate order issued on January 6, 1993 (as
subsequently modified, the Remand Order). On October 27, 1993, Standard &
Poor's changed its "outlook" on the Company's ratings from stable to negative
as part of its larger assessment of the electric utility industry. In July
1994, Standard & Poor's affirmed its ratings of the Company's debt, with its
ratings "outlook" remaining negative. In December 1993, Moody's and Duff &
Phelps affirmed their ratings of the Company's securities, and Moody's rating
outlook on the Company remained stable. See "Part II, Item 5. Market for
Registrant's Common Equity and Related Stockholder Matters" in the Company's
Annual Report on Form 10-K for the year ended December 31, 1993, for additional
information regarding the Company's securities ratings.
Business and Competition. The electric utility business has historically been
characterized by retail service monopolies in state or locally franchised
service territories. Investor-owned electric utilities have tended to be
vertically integrated with all aspects of their business subject to pervasive
regulation. Although customers have normally been free to supply their electric
power needs through self-generation, they have not had a choice of electric
suppliers and self-generation has not generally been economical.
The market in which electric utilities like the Company operate has become
more competitive and many observers believe competition will intensify. Self-
generation can be economical for certain customers, depending on how and when
they use electricity and other customer-specific considerations. A number of
competitors are currently seeking to identify and do business with those
customers. In addition, suppliers of other forms of energy are increasingly
competing to supply energy needs which historically were supplied primarily or
exclusively by electricity.
The Energy Policy Act of 1992 will likely have a significant effect on
companies engaged in the generation, transmission, distribution, purchase and
sale of electricity. This Act, among other things, expands the authority of the
Federal Energy Regulatory Commission (FERC) to order electric utilities to
transmit or "wheel" wholesale power for others, and facilitates the creation of
non-utility electric generating companies. Although the Company cannot now
predict the full impact of this Act, it will likely create and increase
competition affecting the Company.
The Company is facing increased competition from several non-utility
businesses which seek to provide energy services to users of electricity,
especially larger customers such as industrial, commercial and wholesale
customers. Such suppliers include independent power producers and unregulated
energy services companies. In this regard, natural gas utilities operating in
the Company's service area have established subsidiary ventures to provide
heating, ventilating and air conditioning services, attempting to attract the
Company's customers. Also, several utilities in the United States have
established unregulated energy services subsidiaries which pursue business
opportunities wherever they exist. In addition, cogeneration and energy
services companies have begun soliciting the Company's customers to provide
alternatives to using the Company's electricity. In October 1993, the ICC
granted the Company the authority to negotiate special discount contract rates
with new or existing industrial customers for up to a total of 400 megawatts of
added load, where the customers would not have chosen service from the Company
for the increased load in the absence of the discount rates. In addition, in
June 1994, the ICC granted the Company the authority to negotiate special
discount contract rates with up to 25 of its largest existing customers, where
such contracts would be necessary to retain the customers' existing load on the
Company's system.
33
<PAGE>
The ICC has formed a task force for the purpose of examining regulatory
issues affecting electric utilities in Illinois. The task force is comprised of
participants from approximately 40 organizations, including representatives
from the electric utility industry. The task force has indicated that it will
examine three broad issues: effects of regulation, competition and future
regulatory and legislative changes.
On July 13, 1993, legislation became effective in Illinois which permits the
Company to create certain unregulated subsidiaries, and to form a holding
company, without being required to obtain the approval of the ICC. The
legislation gives the Company and its affiliates flexibility to compete with
unregulated competitors to provide energy services. The Company has created an
unregulated subsidiary, Unicom Enterprises Inc., to engage in energy service
activities. At the Company's annual meeting of shareholders on May 10, 1994,
shareholders approved a proposed restructuring that will result in the
formation of a new parent holding company, Unicom Corporation (Unicom). The
Company has obtained necessary federal regulatory approvals from the Nuclear
Regulatory Commission (NRC), the FERC and the SEC and expects to complete the
restructuring by year-end 1994. As a result of the restructuring, the Company
and its wholly-owned subsidiary, Unicom Enterprises Inc., will become separate
wholly-owned subsidiaries of Unicom.
Regulation. The companies are subject to state and federal regulation in the
conduct of their respective businesses, including the operations of Cotter
Corporation. Such regulation includes rates, securities issuance, nuclear
operations, environmental and other matters. Particularly in the cases of
nuclear operations and environmental matters, such regulation can and does
affect the companies' operational and capital expenditures.
During the past several years, the NRC has placed two of the Company's
nuclear generating stations, Zion station and Dresden station, on its list of
plants to be monitored closely. Generally, such status can be expected to
result, and has resulted, in increased expenditures to address deficiencies in
station management and/or operations. The Company has restructured its
management of its nuclear stations and committed additional resources to their
operations. In February 1993, the Company was notified by the NRC that the
Company's Zion station, which was placed on the NRC's list of plants to be
monitored closely in early 1991, was removed from that list. In June 1994, the
Company was notified by the NRC that the Company's Dresden station, which was
placed on the NRC's list of plants to be monitored closely in early 1992, would
remain on that list. Also in June 1994, the Company was notified by the NRC
that the Company's LaSalle County and Quad-Cities stations, which were placed
on the NRC's list of plants with adverse performance trends in January 1994,
would remain on that list. As a consequence, the Company anticipates continued
increased expenditures in connection with those stations. See "Part II. Other
Information, Item 1. Legal Proceedings," subcaption "Nuclear Matters," for
additional information.
The Company estimates that it will expend approximately $15 billion for
decommissioning costs primarily during the period from 2007 through 2032. Such
costs, which are estimated to aggregate approximately $4.24 billion in current-
year (1994) dollars, are expected to be funded by the external decommissioning
trust funds which the Company established in compliance with Illinois law and
into which the Company has been making annual contributions. See Note 1 of
Notes to Financial Statements under "Depreciation and Decommissioning" for
additional information regarding decommissioning costs.
In July 1994, legislation was passed by the Illinois General Assembly that
affirms the ICC's authority to permit the use of riders to recover the costs of
decommissioning. The legislation allows the ICC to authorize the use of a rider
to pass on to ratepayers increases or decreases in the costs of decommissioning
without filing a new rate case. The ICC would retain the authority to monitor
and approve any charges that flow through the rider. The legislation is
awaiting the Governor's signature.
The Clean Air Act Amendments of 1990 (Amendments) will require reductions in
sulfur dioxide emissions from the Company's Kincaid station. The Amendments
also bar future utility sulfur dioxide emissions except to the extent utilities
hold allowances for their emissions. Allowances which authorize
34
<PAGE>
their holder to emit sulfur dioxide will be issued by the United States
Environmental Protection Agency (Federal Agency) based largely on historical
levels of sulfur dioxide emissions. These allowances will be transferable and
marketable. The Company's ability to increase generation in the future to meet
expected increased demand for electricity will depend in part on the Company's
ability to acquire additional allowances or to reduce emissions below otherwise
allowable levels from its existing generating plants. In addition, the
Amendments require studies to determine what controls, if any, should be
imposed on utilities to control air toxic emissions, including mercury. The
Company's Clean Air Compliance Plan for Kincaid station was approved by the ICC
on July 8, 1993. In late 1993, however, a federal court declared the Illinois
law under which the approval was received to be unconstitutional and compliance
plans prepared and approved in reliance on the law to be void. Under the Plan
approved by the ICC, the Company would have been allowed to burn low sulfur
Illinois coal at Kincaid station without the installation of pollution control
equipment for the years 1995 through 1999, and to purchase any necessary
emission allowances that are expected to be available under the Amendments
during this period. Also, under the Plan, the Company expected to install
pollution control equipment for Kincaid station by the year 2000. When the
final outcome of the federal litigation is known, the Company will determine
whether any changes are required.
The Amendments also will require reductions in nitrogen oxide emissions from
the Company's fossil fuel generating units. The Illinois Environmental
Protection Agency (Illinois Agency) has proposed rules with respect to such
emissions which would require modifications to certain of the Company's boilers
inside the Chicago ozone non-attainment area. The Company's construction
program for the three-year period 1994-96 includes $25 million for such
modifications. The Illinois Agency is also considering nitrogen oxide emission
reductions at Company sources outside the Chicago ozone non-attainment area.
Capital Structure. The Company's ratio of long-term debt to total
capitalization has increased to 55.8% at June 30, 1994 from 55.0% at December
31, 1993. This increase is related primarily to the decrease in retained
earnings in the period due to lower net income (as discussed below under
"Results of Operations") and an additional common stock dividend recorded in
June 1994, which will be paid to Unicom following the formation of the holding
company structure. See Note 20 of Notes to Financial Statements for additional
information.
RATE PROCEEDINGS
The Company's revenues, net income, cash flows and plant carrying costs have
been affected directly by various rate-related proceedings. During the periods
presented in the financial statements, the Company was involved in proceedings
concerning its October 1985 ICC rate order (which related principally to the
recovery of costs associated with its Byron Unit 1 nuclear generating unit),
proceedings concerning its March 1991 ICC rate order (which related principally
to the recovery of costs associated with its Byron Unit 2 and Braidwood Units 1
and 2 nuclear generating units (Units)), proceedings concerning the reduction
in the difference between the Company's summer and non-summer residential rates
that was effected in the summer of 1988, and ICC fuel reconciliation
proceedings principally concerning the recoverability of the costs of the
Company's western coal. In addition, there were outstanding issues related to
the appropriate interest rate and rate design to be applied to a refund that
was made in 1990 following the reversal of a December 1988 ICC rate order and a
rider to the Company's rates that the Company was required to file as a result
of the change in the federal corporate income tax rate made by the Tax Reform
Act of 1986. The uncertainties associated with such proceedings and issues,
among other things, led to the Rate Matters Settlement and the Fuel Matters
Settlement (which are discussed below).
The effects of the aforementioned rate proceedings during the periods
presented are discussed below under "Results of Operations."
35
<PAGE>
Settlements Relating to Certain Rate Matters
In November 1993, two settlements related to various proceedings and matters
concerning the Company's rates and its fuel adjustment clause became final. One
settlement (Rate Matters Settlement), which became final on November 4, 1993,
concerned the proceedings relating to the Company's 1985 and 1991 ICC rate
orders, the proceedings relating to the reduction in the difference between the
Company's summer and non-summer residential rates, the outstanding interest
rate and rate design issues, and a rider related to the change in the federal
corporate income tax rate made by the Tax Reform Act of 1986. The other
settlement (Fuel Matters Settlement), which became final on November 15, 1993,
related to the ICC fuel reconciliation proceedings involving the Company for
the period from 1985 through 1988 and to future challenges by the settling
parties to the prudency of the Company's western coal costs for the period from
1989 through 1992.
Under the Rate Matters Settlement, effective as of November 4, 1993, the
Company reduced its rates by approximately $339 million annually and commenced
refunding approximately $1.26 billion (including revenue taxes), plus interest
at five percent on the unpaid balance, through temporarily reduced rates over
an initial refund period of twelve months (to be followed by a reconciliation
period of no more than five months). The Company had previously deferred the
recognition of revenues during 1993 as a result of developments in the
proceedings related to the March 1991 ICC rate order, which resulted in a
reduction to 1993 net income of approximately $160 million or $0.75 per common
share. The recording of the effects of the Rate Matters Settlement in October
1993 reduced the Company's 1993 net income by approximately $292 million or
$1.37 per common share, in addition to the approximately $160 million effect of
the deferred recognition of revenues and after the partially offsetting effect
of recording approximately $269 million (or $1.26 per common share) in deferred
carrying charges, net of income taxes, authorized in the ICC rate order issued
on January 6, 1993 (as subsequently modified, the Remand Order). The deferred
recognition of revenues was eliminated in October 1993 at the time the
provisions for revenue refunds related to the Rate Matters Settlement, which
reflected those deferred revenues, were recorded. Consistent with such
treatment of the deferred recognition of revenues in 1993, the financial
statements presented herein for the three months, six months and twelve months
ended June 30, 1993 and the twelve months ended June 30, 1994 reflect the
reclassification of the deferred recognition of revenues from operating
revenues to provisions for revenue refunds. This reclassification had no effect
on net electric operating revenues. In January 1994, a purported class action
was filed in the Circuit Court of Cook County, Illinois (Circuit Court)
challenging the making of refunds to current rather than to historical
residential customers in the Rate Matters Settlement. That action has been
dismissed with prejudice. Although plaintiff may appeal, the Company does not
believe that the action has any merit.
Under the Fuel Matters Settlement, effective as of December 2, 1993, the
Company commenced paying approximately $108 million (including revenue taxes)
to its customers through temporarily reduced collections under its fuel
adjustment clause over a twelve-month period. The Company recorded the effects
of the Fuel Matters Settlement in October 1993, which effects reduced the
Company's net income by approximately $62 million or $0.29 per common share.
The settlements will reduce the Company's cash flows from operations during
1994 and future periods by amounts corresponding to the rate reductions and
refunds. The balances of cash and cash investments decreased by approximately
$600 million from December 31, 1993 to June 30, 1994, primarily due to the
effects of the settlements. See Note 9 of Notes to Financial Statements for
information regarding unused lines of credit available to the Company.
Other Rate Matters
On February 10, 1994, the Company filed a request with the ICC to increase
electric operating revenues by approximately $460 million, or 7.9%, on an
annual basis above the level of revenues approved in the Rate Matters
Settlement. This request principally reflects the inclusion of the Units in the
36
<PAGE>
Company's rate base as fully "used and useful," increased operation and
maintenance expenses over the level reflected in the Remand Order, increased
contributions to the external trust funds which the Company is required to fund
to cover the eventual decommissioning of its nuclear power plants and lower
debt and equity costs. The ICC has suspended the rates, appointed hearing
examiners and ordered an investigation. On July 21, 1994, the ICC Staff (Staff)
submitted their recommendation that the Company receive a total rate increase
of just over $300 million (of which approximately $43 million is for increased
contributions to the external decommissioning trust funds). Staff's testimony
recommended that Byron Unit 2 and Braidwood Unit 1 be found fully "used and
useful" and Braidwood Unit 2 be found approximately 63% "used and useful."
Under the Illinois Public Utilities Act, the ICC must decide the case by early
January 1995.
In the Remand Order, the rate determination was based upon, among other
things, findings by the ICC with respect to the extent to which the Units were
"used and useful" during the 1991 test year period of the rate order. With
respect to the "used and useful" issue, the ICC applied a needs and economic
benefits methodology, using a twenty percent reserve margin and forecasted peak
demand, and found Byron Unit 2 and Braidwood Units 1 and 2 to be 93%, 21% and
0%, respectively, "used and useful." The Company has not recorded any
disallowances related to the "used and useful" issue. The Company considers the
"used and useful" disallowance in the Remand Order to be temporary. The ICC
concluded in the Remand Order that the forecasts in the record in that
proceeding indicate that Braidwood Units 1 and 2 will be fully "used and
useful" within the reasonably foreseeable future.
RESULTS OF OPERATIONS
Three Months, Six Months and Twelve Months Ended June 30, 1994
Compared to Three Months, Six Months and Twelve Months Ended June 30, 1993
Earnings (Loss) Per Common Share. The Company's earnings (loss) per common
share for the three months ended June 30, 1994 were $(0.11) compared to $0.27
for the three months ended June 30, 1993, $0.06 for the six months ended June
30, 1994 compared to $0.56 for the six months ended June 30, 1993, and $(0.28)
for the twelve months ended June 30, 1994 compared to $1.99 for the twelve
months ended June 30, 1993. The decreases in the recent periods reflect higher
operation and maintenance expenses, which include a non-recurring after-tax
charge for additional pension costs related to an early retirement program of
$10 million (or $0.04 per common share) for the three months ended June 30,
1994 and $19 million (or $0.09 per common share) for the six months and twelve
months ended June 30, 1994. The Company also recorded a reduction in the
carrying value of its investments in uranium-related properties which reduced
net income by $33.8 million (or $0.16 per common share) for the three-month,
six-month and twelve-month periods ended June 30, 1994. The decreases in the
recent three-month and six-month periods were partially offset by higher
revenues as a result of increased kilowatthour sales to ultimate consumers.
Earnings per share in the recent twelve-month period were significantly
affected by the recording of the effects of the Rate Matters Settlement and
Fuel Matters Settlement, the net effects of which reduced net income for the
twelve months ended June 30, 1994 by approximately $384 million or $1.80 per
common share, in addition to the effect of the deferred recognition of revenues
which the Company had recorded during the recent twelve-month period
(approximately $78 million or $0.37 per common share), and after the partially
offsetting effect of recording approximately $263 million or $1.23 per common
share in deferred carrying charges, net of income taxes and amortization, as
authorized in the Remand Order. This negative effect was partially offset by
higher revenues resulting from an increase in kilowatthour sales in the recent
twelve-month period. The prior six-month and twelve-month periods reflect the
favorable cumulative effect ($9.7 million or $0.05 per common share) of the
Company's adoption of Statement of Financial Accounting Standards (SFAS) No.
109, Accounting for Income Taxes, in January 1993.
37
<PAGE>
See "Rate Proceedings" above for information relating to various rate
proceedings which have affected the Company's earnings per common share and
"Rate Proceedings," subcaption "Settlements Relating to Certain Rate Matters"
above for information regarding a reclassification of the deferred recognition
of revenues from operating revenues to provisions for revenue refunds for the
three months, six months and twelve months ended June 30, 1993 and the twelve
months ended June 30, 1994.
Kilowatthour Sales. Kilowatthour sales to ultimate consumers for the three
months, six months and twelve months ended June 30, 1994 increased 3.9%, 3.9%
and 5.0%, respectively, compared to the three months, six months and twelve
months ended June 30, 1993. The increase in the recent three-month period
reflects higher kilowatthour sales to all classes of customers due primarily to
warmer than normal early summer weather as compared to the same period ended
June 30, 1993. The increases in the recent six-month and twelve-month periods
reflect higher kilowatthour sales to all classes of customers due primarily to
warmer than normal early summer weather and colder than normal winter weather
as compared to the same periods ended June 30, 1993. Kilowatthour sales
including sales for resale decreased 10.5% and 3.4% during the three-month and
six-month periods ended June 30, 1994, respectively, compared to the same
periods ended June 30, 1993, and increased 7.2% for the twelve-month period
ended June 30, 1994, compared to the same period ended June 30, 1993.
Electric Operating Revenues. Operating revenues increased in the three months
and six months ended June 30, 1994 compared to the three months and six months
ended June 30, 1993. The increases in the recent three-month and six-month
periods principally reflect the increased level of kilowatthour sales to
ultimate consumers described above. The operating revenue increase in the
recent three-month period was partially offset by a decrease in fuel costs
recovered under the fuel adjustment provision. The prior six-month period
reflected higher rate levels recognized prior to January 15, 1993, the
effective date on which the Company began deferring recognition of revenues for
amounts over the $144 million rate increase level provided in the Remand Order.
Operating revenues decreased in the twelve months ended June 30, 1994 as
compared to the prior twelve-month period, principally reflecting the recording
of the effects of the Rate Matters Settlement and the Fuel Matters Settlement,
which reduced operating revenues by approximately $1,149 million in the recent
period. This reduction was partially offset by the effects of the previously
described higher kilowatthour sales. The decrease in operating revenues for the
recent twelve-month period was also partially offset by the increase in fuel
costs recovered under the fuel adjustment provision.
Operating revenues for 1994 will be affected by the Rate Matters Settlement
(discussed above), which lowered the level of the Company's rates.
Fuel Costs. Changes in fuel expense for the three months, six months and
twelve months ended June 30, 1994 as compared to the same periods ended June
30, 1993 primarily result from changes in the average cost of fuel consumed,
changes in the mix of fuel sources of electric energy generated and changes in
net generation of electric energy. Fuel mix is determined primarily by system
load, the costs of fuel consumed and the availability of nuclear generating
units. The cost of fuel consumed, net generation of electric energy and fuel
sources of kilowatthour generation were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30 JUNE 30 JUNE 30
-------------------- ------------------ --------------------
1993 1994 1993 1994 1993 1994
--------- --------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Cost of fuel consumed
(per million Btu):
Nuclear................ $0.50 $0.53 $0.51 $0.54 $0.51 $0.53
Coal................... $3.14 $2.44 $3.14 $2.36 $3.19 $2.54
Oil.................... $3.13 $2.76 $3.08 $2.77 $3.10 $2.85
Natural gas............ $2.97 $2.40 $3.00 $2.54 $2.88 $2.57
Average all fuels...... $1.04 $1.19 $1.13 $1.15 $1.03 $1.16
Net generation of
electric energy
(millions of
kilowatthours)......... 23,041 20,300 44,822 42,513 86,281 91,957
Fuel sources of kilo-
watthour generation:
Nuclear................ 82% 67% 78% 68% 82% 70%
Coal................... 17 28 21 27 17 27
Oil.................... -- 1 -- 2 -- 1
Natural gas............ 1 4 1 3 1 2
--------- --------- -------- -------- --------- ---------
100% 100% 100% 100% 100% 100%
========= ========= ======== ======== ========= =========
</TABLE>
38
<PAGE>
Under the Energy Policy Act of 1992, investor-owned electric utilities that
have purchased enrichment services from the Department of Energy (DOE) are
being assessed amounts to fund a portion of the cost for the decontamination
and decommissioning of three nuclear enrichment facilities previously operated
by the DOE. The Company's portion of such assessments is estimated to be
approximately $15 million per year (to be adjusted annually for inflation). The
Act provides that such assessments are to be treated as a cost of fuel. See
Note 1 of Notes to Financial Statements for information related to the
accounting for such costs.
Fuel Supply. Compared to other utilities, the Company has relatively low
average fuel costs. This results from the Company's reliance predominantly on
lower cost nuclear generation. The Company's coal costs, however, are high
compared to those of other utilities. The Company's western coal contracts and
its rail contracts for delivery of the western coal were renegotiated during
1992 effective as of January 1, 1993, to provide, among other things, for
significant reductions in the delivered price of the coal over the duration of
the contracts. However, the renegotiated contracts provide for the purchase of
certain coal at prices substantially above currently prevailing market prices
and the Company has significant purchase commitments under its contracts. In
addition, as of June 30, 1994, the Company had unrecovered fuel costs in the
form of coal reserves of approximately $509 million. In prior years, the
Company's commitments for the purchase of coal exceeded its requirements.
Rather than take all the coal it was required to take, the Company agreed to
purchase the coal in place in the form of coal reserves. For additional
information concerning the Company's coal purchase commitments, fuel
reconciliation proceedings and coal reserves, see "Liquidity and Capital
Resources" above and Notes 1, 2 and 19 of Notes to Financial Statements.
Purchased Power. Amounts of purchased power are primarily affected by system
load, the availability of the Company's generating units and the availability
and cost of power from other utilities.
The number and average cost of kilowatthours purchased were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30 JUNE 30 JUNE 30
--------------------- ------------------ ---------------------
1993 1994 1993 1994 1993 1994
--------- --------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Kilowatthours
(millions)............. 137 965 408 1,623 1,327 1,859
Cost per kilowatthour... 2.03c 2.87c 1.94c 2.76c 1.85c 2.65c
</TABLE>
Deferred Under or Overrecovered Energy Costs--Net. Electric operating
expenses for the three months, six months and twelve months ended June 30, 1994
and 1993 reflect the net change in under or overrecovered allowable energy
costs under the Company's fuel adjustment clause. See "Fuel Costs" and "Fuel
Supply" above and Note 1 of Notes to Financial Statements.
Operation and Maintenance Expenses. Total operation and maintenance expenses
increased 15%, 12% and 3% for the three months, six months and twelve months
ended June 30, 1994, respectively, compared to the same periods ended June 30,
1993. The increase in the current three-month period primarily reflects higher
operation and maintenance expenses associated with nuclear generating stations
and pension costs. The increase in the current six-month period primarily
reflects higher operation and maintenance expenses associated with nuclear and
fossil generating stations, distribution facilities, customer-related
activities, pension costs and certain administrative and general costs. The
increase in the twelve months ended June 30, 1994 reflects higher operation and
maintenance expenses associated with nuclear generating stations, distribution
facilities, the 1993 special pay incentive program and pension costs, partially
offset by lower expenses associated with fossil generating stations. The
effects of inflation are reflected in the increases and decreases discussed
below and have increased operation and maintenance costs for the three months,
six months and twelve months ended June 30, 1994.
Operation and maintenance expenses associated with the nuclear generating
stations increased $60 million and $56 million in the three months and six
months ended June 30, 1994, respectively, compared
39
<PAGE>
to the same periods ended June 30, 1993. The increases for the current three-
month and six-month periods associated with the nuclear generating stations
are primarily due to a greater number of scheduled overhauls and an increase
in expenses associated with stations which were placed on the NRC's list of
plants with adverse performance trends in January 1994. For 1994, the Company
has budgeted an increase in nuclear operation and maintenance expenses of
approximately 4.5% over 1993 actual and currently expects to complete the year
near to budget. Future operation and maintenance expenses associated with
nuclear generating stations may be significantly affected by regulatory,
operational and other requirements. See "Regulation" under "Liquidity and
Capital Resources" above. Operation and maintenance expenses associated with
the fossil generating stations decreased $7 million in the twelve months ended
June 30, 1994 compared to the same period ended June 30, 1993. The decrease in
the twelve-month period reflects, in part, a lesser number of scheduled
overhauls. Operation and maintenance expenses associated with the fossil
generating stations increased $9 million for the six-month period ended June
30, 1994 compared to the same period ended June 30, 1993. The increase in the
six-month period reflects, in part, a greater number of scheduled overhauls.
Operation and maintenance expenses associated with the Company's
distribution system increased $6 million and $15 million in the six months and
twelve months ended June 30, 1994, respectively, compared to the same periods
ended June 30, 1993. The increases in the recent periods reflect costs related
to a system safety and reliability improvement program. Expenses associated
with the Company's distribution system may increase in future years due, in
part, to the effect of increased customer expectations regarding service
reliability.
The twelve-month period ended June 30, 1994 reflects a $36 million special
incentive plan cost (recorded in December 1993) for employees related to a
sharing of operation and maintenance savings below 1993 budgeted levels.
The costs of pension and other employee benefits, including postretirement
health care benefits, increased $15 million, $29 million and $4 million in the
three months, six months and twelve months ended June 30, 1994, respectively,
compared to the same periods ended June 30, 1993. The increases in the current
periods reflect non-recurring costs of $16 million for the three months ended
June 30, 1994 and $32 million for the six months and twelve months ended June
30, 1994, related to employees who elected in the first and second quarters to
take early retirements under a 1994 early retirement program. It is estimated
that, in total, the program will result in the recognition of approximately
$35 million of pension cost. The comparison with the prior twelve-month period
is affected by $26 million of additional pension costs recorded in the third
quarter of 1992 related to the Company's 1992 workforce reduction program. See
Notes 12 and 13 of Notes to Financial Statements for additional information.
Certain administrative and general costs increased $9 million and $5 million
for the six months and twelve months ended June 30, 1994, respectively,
compared to the same periods ended June 30, 1993, primarily due to an increase
in the provision for injuries and damages. Costs of customer-related
activities increased $4 million in the six months ended June 30, 1994 compared
to the same period ended June 30, 1993.
For further information regarding a cost reduction plan and its effect on
operation and maintenance expenses, see "Liquidity and Capital Resources,"
subcaption "Rates and Financial Condition" above.
Depreciation. Depreciation expense for the three months, six months and
twelve months ended June 30, 1994 increased over the same periods a year ago
as a result of additions to plant in service. See Note 1 of Notes to Financial
Statements for information concerning depreciation rates and decommissioning
costs.
Interest on Debt. Changes in interest on long-term debt and notes payable
for the three months, six months and twelve months ended June 30, 1994 as
compared to the same periods ended June 30, 1993 were due to changes in
average interest rates and in the amounts of long-term debt and notes payable
outstanding. Changes in interest on long-term debt reflect new issues of debt
and the retirement and
40
<PAGE>
redemption of issues which were refinanced at generally lower rates of
interest. The average amounts of long-term debt and notes payable outstanding
and average interest rates thereon were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30 JUNE 30 JUNE 30
-------------------- ------------------ --------------------
1993 1994 1993 1994 1993 1994
--------- --------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Long-term debt outstand-
ing--
Average amount (mil-
lions)................ $ 8,240 $ 7,944 $ 8,152 $ 7,985 $ 8,003 $ 8,007
Average interest rate.. 8.14% 7.85% 8.20% 7.84% 8.32% 7.87%
Notes payable outstand-
ing--
Average amount (mil-
lions)................ $ 6 $ 6 $ 6 $ 6 $ 8 $ 6
Average interest rate.. 5.83% 6.71% 5.83% 6.29% 5.27% 6.07%
</TABLE>
Deferred Carrying Charges. In the Remand Order, the ICC provided that, for
ratemaking purposes, deferred carrying charges on the reasonable and "used and
useful" plant costs of the Units for the period April 1, 1989 until
approximately March 20, 1991, the date the Units were reflected in rates, could
be deferred and amortized. Approximately $438 million of such costs were
capitalized as a regulatory asset in October 1993 and resulted in an increase
to net income for the twelve months ended June 30, 1994 of approximately $263
million or $1.23 per common share. Amortization of deferred carrying charges
for the three months, six months and twelve months ended June 30, 1994 amounted
to approximately $3 million, $7 million and $9 million, respectively.
Income Taxes. In the third quarter of 1993, the President of the United
States signed into law a deficit-reduction plan that included, among other
things, an increase in the federal statutory corporate income tax rate from 34%
to 35%, effective January 1, 1993. The estimated effect of the higher rate
would be to increase the Company's costs by approximately $12 million per year.
The Company began recording the effects of the increased taxes in the third
quarter of 1993. In addition to the effects on income discussed above, the
Company recorded in the third quarter of 1993 a net increase in the deferred
income tax liability which was primarily offset by regulatory assets net of
regulatory liabilities, reflecting the increase in taxes recoverable in rates
to settle net income tax liabilities recorded in prior years.
Further, the Company recorded in the third quarter of 1993 the effects of the
elimination of a scheduled reduction in a component of the statutory Illinois
income tax rate which was to have declined to 4.4% from 4.8%, effective July 1,
1993.
In 1993, the Company recorded a loss for income tax purposes. Income tax
overpayments resulting from such loss and other income tax refunds,
approximating $187 million and $51 million at December 31, 1993 and June 30,
1994, respectively, are included in the Consolidated Balance Sheets in
receivables.
See Note 14 of Notes to Financial Statements for information concerning the
accounting standard adopted by the Company in January 1993 which requires the
Company to use an asset and liability approach for financial accounting and
reporting for income taxes rather than the deferred method.
Decommissioning. The staff of the SEC has questioned certain of the current
accounting practices of the electric utility industry, including the Company,
regarding the recognition, measurement and classification of decommissioning
costs for nuclear generating stations in financial statements of electric
utilities. In response to these questions, the Financial Accounting Standards
Board has agreed to review the accounting for nuclear decommissioning costs. If
current electric utility industry accounting practices for such decommissioning
are changed: (1) annual provisions for decommissioning could increase; (2) the
estimated cost for decommissioning could be recorded as a liability rather than
as accumulated depreciation; and (3) trust fund income from the external
decommissioning trusts could be reported as investment income rather than as a
reduction to decommissioning expense. The Company does not believe that such
changes, if required, would have an adverse effect on results of operations due
to its current and future ability to recover decommissioning costs through
rates.
41
<PAGE>
Investments in Uranium-Related Properties. In May 1994, the Company recorded
a reduction in the carrying value of its investments in uranium-related
properties after completing a review of various alternatives and reassessing
the long-term recoverability of those investments. The effects of the
reduction reduced the Company's net income by approximately $33.8 million or
$0.16 per common share.
Other Items. The amounts of allowance for funds used during construction
(AFUDC) reflect changes in the average levels of investment subject to AFUDC
and changes in the average annual rates as discussed in Note 1 of Notes to
Financial Statements. AFUDC does not contribute to the current cash flow of
the Company.
The ratios of earnings to fixed charges for the twelve months ended December
31, 1993 and June 30, 1994 were 1.19 and 0.98, respectively. The ratios of
earnings to fixed charges and preferred and preference stock dividend
requirements for the twelve months ended December 31, 1993 and June 30, 1994
were 1.03 and 0.86, respectively. For the twelve months ended June 30, 1994,
the ratios indicate that earnings are inadequate to cover fixed charges by
approximately $11 million and fixed charges and preferred and preference stock
dividend requirements by approximately $116 million.
Business corporations in general have been adversely affected by inflation
because amounts retained after the payment of all costs have been inadequate
to replace, at increased costs, the productive assets consumed. Electric
utilities in particular have been especially affected as a result of their
capital intensive nature and regulation which limits capital recovery and
prescribes installation or modification of facilities to comply with
increasingly stringent safety and environmental requirements. Because the
regulatory process limits the amount of depreciation expense included in the
Company's revenue allowance to the original cost of utility plant investment,
the resulting cash flows are inadequate to provide for replacement of that
investment in future years or preserve the purchasing power of common equity
capital previously invested.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
ELECTRIC RATES. The following table summarizes rate increases granted in the
Company's major rate proceedings before the ICC since January 1, 1985.
Revenues actually realized as a result of the rate increases may vary
depending on levels of kilowatthour sales to each class of customers. See
Notes 2 and 3 of Notes to Financial Statements.
<TABLE>
<CAPTION>
AUTHORIZED
---------------------------------------------------------
END OF
TWELVE-MONTH
ANNUAL AMOUNT PERCENT TEST PERIOD
REQUESTED (IN ANNUAL INCREASE CITED IN
MILLIONS) AND AMOUNT (IN OVER PREVIOUS FINAL RATE
DATE OF FILING EFFECTIVE DATE MILLIONS)(A) REVENUES(A) ORDER
- ----------------- ---------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
$583
November 29, 1984 October 29, 1985 $495(b) 11.0 December 1984
$1,415
August 21, 1987 January 1, 1989 $235(c) 4.5(c) December 1987
$1,231
April 12, 1990 March 20, 1991 $750(d) 14.0(d) December 1991
</TABLE>
- --------
(a) The amounts granted and the related percent increases are based on the
test periods cited in the rate orders and exclude add-on revenue taxes.
(b) Includes approximately $81 million of revenue included in rates effective
January 1, 1987 pursuant to a phase-in plan. The phase-in plan reflects
the recovery of the $81 million postponed portion of the increase and an
additional recovery ($56 million) of a full return on the postponed
portion over a two-year period.
(c) Represents the first step of a rate increase relating to the Units
authorized by a December 1988 rate order which was reversed by the
Illinois Supreme Court on December 21, 1989 and excludes a $56 million
decrease resulting from completion of the recovery period referred to in
note (b). This rate increase was rolled back, effective July 1, 1990.
(d) Represents the aggregate amount of the rate increase, which was to be
phased-in over a three-year period. As a result of subsequent proceedings
and the Rate Matters Settlement, only an increase of approximately $144
million in annual electric operating revenues remains effective. See "Rate
Proceedings," subcaption "Settlements Relating to Certain Rate Matters" in
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" and Note 2 of Notes to Financial Statements.
42
<PAGE>
CERTAIN REGULATORY MATTERS. Through its fuel adjustment clause, the Company
recovers from its customers the cost of the fuel used to generate electricity
and of purchased power as compared to fuel costs included in base rates. The
amounts collected under the fuel adjustment clause are subject to review by the
ICC, which, under the Illinois Public Utilities Act, is required to hold annual
public hearings to reconcile the collected amounts with the actual cost of fuel
and power prudently purchased. In the event that the collected amounts exceed
such actual cost, then the ICC can order that the excess be refunded. For
additional information concerning the Company's fuel reconciliation proceedings
and coal reserves, see Notes 1, 2 and 19 of Notes to Financial Statements.
Currently, the ICC is conducting a focused management audit of the Company's
fuel procurement process, which began in December 1993 and is scheduled to be
completed in 1994.
LITIGATION. During 1989 and 1991, actions were brought in federal and state
courts in Colorado against the Company and its subsidiary, Cotter Corporation
(Cotter), alleging that Cotter has permitted radioactive and other hazardous
material to be released from its mill into areas owned or occupied by the
plaintiffs resulting in property damage and potential adverse health effects.
The plaintiffs seek from Cotter and the Company unspecified compensatory,
exemplary and medical monitoring fund damages, unspecified response costs under
the Comprehensive Environmental Response, Compensation and Liability Act of
1980 (CERCLA), and temporary and permanent injunctive relief. In February 1994,
a federal jury returned a verdict in favor of eight bellwether plaintiffs in
the total amount of $76,400 in property damages, rejecting any award for
exemplary or medical monitoring damages. The court also awarded prejudgment
interest in the amount of $61,522. Plaintiffs have appealed. The remaining
cases are not yet scheduled for trial. Although the cases will necessarily
involve the resolution of numerous contested issues of fact and law, the
Company's determination is that these actions will not have a material adverse
impact on the Company's financial statements.
In October 1990, the Company filed a complaint in the Circuit Court against
Westinghouse Electric Corporation (Westinghouse) and certain of its employees.
The complaint alleges that the defendants knowingly concealed information
regarding the durability of the metal used in the steam generators (a major
component of the nuclear steam supply systems) at the Zion, Byron and Braidwood
stations. The complaint further alleges that the defects in the steam
generators will prevent the plants from maintaining their full power output
through their forty-year design life without costly remanufacture or
replacement of the steam generators. Damages, including punitive damages, in an
unspecified amount are claimed. Westinghouse has filed a counterclaim against
the Company which seeks recovery of Westinghouse's costs of defense and damages
of approximately $13 million.
Shareholder derivative lawsuits were filed on October 1, 1992 and on April
14, 1993 in the Circuit Court against current and former directors of the
Company alleging that they breached their fiduciary duty and duty of care to
the Company in connection with the management of the activities associated with
the construction of the Company's four most recently completed nuclear
generating units. The lawsuits sought restitution to the Company by the
defendants for unquantified and undefined losses and costs alleged to have been
incurred by the Company. Both lawsuits were dismissed by the Circuit Court;
however, appeals are pending before the Illinois Appellate Court.
A number of complaints have been filed by former employees with the Equal
Employment Opportunity Commission, and several lawsuits have been filed by
former employees in the United States District Court, alleging that the
employees' terminations (which occurred as part of the Company's management
workforce reductions that were implemented in the second half of 1992) involved
discrimination on the basis of age, race, sex, national origin and/or
disabilities, in violation of applicable law. One case alleges that the
Company's calculation of vacation pay owed to terminated employees violated
Illinois law; however, in June 1994, summary judgment was entered in favor of
the Company. The complainants in these various cases are seeking, among other
things, awards of back pay and lost benefits, reinstatement, pecuniary damages,
and costs and attorneys' fees.
43
<PAGE>
NUCLEAR MATTERS. Under the Nuclear Waste Policy Act of 1982, the DOE is
responsible for the selection and development of repositories for, and the
disposal of, spent nuclear fuel and high-level radioactive waste. The Company,
as required by that Act, has signed a contract with the DOE to provide for the
disposal of spent nuclear fuel and high-level radioactive waste from the
Company's nuclear generating stations beginning not later than January 1998.
The contract with the DOE requires the Company to pay the DOE a one-time fee
applicable to nuclear generation through April 6, 1983 of approximately $277
million, with interest to date of payment, and a fee payable quarterly equal
to one mill per kilowatthour of nuclear-generated and sold electricity after
April 6, 1983. The Company has elected to pay the one-time fee, with interest,
just prior to the first scheduled delivery of spent nuclear fuel to the DOE,
which is scheduled to occur not later than January 1998; however, this
delivery schedule is expected to be delayed significantly. The costs incurred
by the DOE for disposal activities will be paid out of fees charged to owners
and generators of spent nuclear fuel and high-level radioactive waste. The
Company has primary responsibility for the interim storage of its spent
nuclear fuel. The Company anticipates the possibility of serious difficulties
in disposing of high-level radioactive waste.
The federal Low-Level Radioactive Waste Policy Act of 1980 provides that
states may enter into compacts to provide for regional disposal facilities for
low-level radioactive waste, subject to approval by the United States Congress
(Congress) of each such compact. Under the 1985 amendments to that Act, a
compact could restrict the use of a region's disposal facilities after January
1, 1993 to waste generated within the region. South Carolina, which belongs to
a regional compact, granted the Company access to its waste disposal site for
an 18-month period which expired on June 30, 1994. There are no other
commercial operating sites in the United States for the disposal of low-level
radioactive waste available to the Company. Illinois has entered into a
compact with the state of Kentucky, which has been approved by Congress.
Neither Illinois nor Kentucky currently has an operational site, and one is
currently not expected to be operational until after the year 2000. The
Company has temporary on-site storage capacity at its nuclear generating
stations for a limited amount of low-level radioactive waste and is planning
additional such capacity pending development of disposal facilities by the
state of Illinois. The Company anticipates the possibility of serious
difficulties in disposing of low-level radioactive waste. The continuing
viability of commercial nuclear power is subject to resolution of the issues
of spent nuclear fuel storage and disposal of radioactive waste.
In February 1993, the Company was notified by the NRC that the Company's
Zion station, which was placed on the NRC's list of plants to be monitored
closely in early 1991, was removed from that list. In June 1994, the Company
was notified by the NRC that the Company's Dresden station, which was placed
on the NRC's list of plants to be monitored closely in early 1992, would
remain on that list. Also in June 1994, the Company was notified by the NRC
that the Company's LaSalle County and Quad-Cities stations, which were placed
on the NRC's list of plants with adverse performance trends in January 1994,
would remain on that list. As a consequence, the Company anticipates continued
increased expenditures in connection with those stations. See "Liquidity and
Capital Resources," subcaption "Regulation" in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" for additional
information.
In accordance with a commitment to the NRC, the Company examined its
operating boiling water nuclear generating units in 1983 to determine the
existence or extent of inter-granular stress corrosion in certain of the large
diameter piping in those units. Inter-granular stress corrosion was discovered
in the Dresden and Quad-Cities units. The Company replaced the stainless steel
piping susceptible to stress corrosion at Dresden Unit 3 and is taking
alternative remedial actions which are intended to minimize the need to
replace such piping at Dresden Unit 2, Quad-Cities Units 1 and 2 and LaSalle
County Units 1 and 2. If the Company is required to replace all of such
piping, the estimated construction expenditures, in current-year (1994)
dollars, would be approximately $620 million.
44
<PAGE>
The Company has studied the possibility of having to replace the steam
generators at its Zion nuclear generating plant. The initial studies were
completed in early June 1991 and additional follow-up studies are continuing.
Based on the findings of these studies, the Company plans to replace the Zion
Unit 1 steam generators, for service in the year 2000, at an estimated cost of
approximately $225 million. The Company is also studying the replacement of the
steam generators at Byron Unit 1 and Braidwood Unit 1 and expects such
replacement may be needed. Initial and on-going studies indicate possible
replacements as early as the year 2000 for Byron Unit 1 and 2002 for Braidwood
Unit 1; however, alternative remedial actions are also being explored. If
required, the replacement cost of the steam generators at Byron Unit 1 and
Braidwood Unit 1 would be comparable to Zion Unit 1. Approximately $3 million
of preliminary engineering expenditures are included in the 1994-96
construction program. See "Litigation" herein concerning litigation by the
Company against Westinghouse concerning steam generators.
During the year 1993, civil penalties were imposed on the Company by the NRC
on seven occasions for violations of NRC regulations in amounts aggregating
$562,500. Since January 1, 1994, the NRC has imposed on the Company five civil
penalties in the amount of $587,500 for violations of NRC regulations.
ENVIRONMENTAL MATTERS. Air quality regulations, promulgated by the Illinois
Pollution Control Board (IPCB) as well as the Indiana and Hammond Departments
of Environmental Management in accordance with federal standards, impose
restrictions on the emission of particulates, sulfur dioxide, nitrogen oxides
and other air pollutants and require permits from the respective state and
local environmental protection agencies for the operation of emission sources.
Permits authorizing operation of the Company's fossil-fueled generating
facilities subject to this requirement have been obtained and, where such
permits are due to expire, the Company has, in a timely manner, filed
applications for renewal or requested extensions of the existing permits.
Under the Federal Clean Water Act, National Pollutant Discharge Elimination
System (NPDES) permits for discharges into waterways are required to be
obtained from the Federal Agency or from the state environmental agency to
which the permit program has been delegated. Those permits must be renewed
periodically. The companies either have NPDES permits for all of their
generating stations or have filed applications for renewals of such permits
under the current delegation of the program to the Illinois Agency or the
Indiana Department of Environmental Management. The Company is also subject to
the jurisdiction of certain pollution control agencies of the state of Iowa
with respect to the discharge into the Mississippi River from the Quad-Cities
station. Reissued NPDES permits for several generating facilities establish
schedules by which the facilities must meet tighter discharge limits when using
certain biocides in condenser cooling water systems. The Company has embarked
on a program to obtain compliance with the new permit requirements by the April
1995 compliance date.
On August 10, 1990, the Sierra Club filed suit in the U.S. District Court
under Section 505 of the Federal Clean Water Act alleging violations of state
of Illinois water quality standards with respect to thermal effluents at the
Company's Fisk, Crawford, Will County, Joliet and Dresden generating stations.
In July 1991, the Sierra Club and the Company reached a settlement of this suit
which was approved by the Court on November 1, 1991. Under the settlement, the
Company has agreed to perform an ecological study of the thermal effluents
discharged from the generating stations. Ultimately, this study, which is
currently underway, may determine whether the installation of closed cycle
cooling facilities or operational restrictions are necessary at one or more of
these stations.
The Great Lakes Critical Programs Act of 1990 requires that, following the
issuance of guidance by the Federal Agency, the states of Illinois and Indiana,
among others, adopt water quality standards, policies and procedures to assure
protection of the water quality of the Great Lakes. Water quality standards and
procedures that the states would be required to adopt under the current version
of the Federal Agency's draft guidance ultimately could require that the
Company install additional pollution control equipment or restrict operations
at its facilities that discharge, either directly or indirectly, into Lake
Michigan. The Federal Agency is expected to issue final guidance in 1995.
45
<PAGE>
The Clean Air Act Amendments of 1990 (Amendments) will require reductions in
sulfur dioxide emissions from the Company's Kincaid station. The Amendments
also bar future utility sulfur dioxide emissions except to the extent utilities
hold allowances for their emissions. Allowances which authorize their holder to
emit sulfur dioxide will be issued by the Federal Agency based largely on
historical levels of sulfur dioxide emissions. These allowances will be
transferable and marketable. The Company's ability to increase generation in
the future to meet expected increased demand for electricity will depend in
part on the Company's ability to acquire additional allowances or to reduce
emissions below otherwise allowable levels from its existing generating plants.
In addition, the Amendments require studies to determine what controls, if any,
should be imposed on utilities to control air toxic emissions, including
mercury. The Company's Clean Air Compliance Plan for Kincaid station was
approved by the ICC on July 8, 1993. In late 1993, however, a federal court
declared the Illinois law under which the approval was received to be
unconstitutional and compliance plans prepared and approved in reliance on the
law to be void. Under the Plan approved by the ICC, the Company would have been
allowed to burn low sulfur Illinois coal at Kincaid station without the
installation of pollution control equipment for the years 1995 through 1999,
and to purchase any necessary emission allowances that are expected to be
available under the Amendments during this period. Also, under the Plan, the
Company expected to install pollution control equipment for Kincaid station by
the year 2000. When the final outcome of the federal litigation is known, the
Company will determine whether any changes are required.
The Amendments also will require reductions in nitrogen oxide emissions from
the Company's fossil fuel generating units. The Illinois Agency has proposed
rules with respect to such emissions which would require modifications to
certain of the Company's boilers inside the Chicago ozone non-attainment area.
The Company's construction program for the three-year period 1994-96 includes
$25 million for such modifications. The Illinois Agency is also considering
nitrogen oxide emission reductions at Company sources outside the Chicago ozone
non-attainment area.
CERCLA provides for immediate response and removal actions coordinated by the
Federal Agency to releases of hazardous substances into the environment and
authorizes the federal government either to clean up sites at which hazardous
substances have created actual or potential environmental hazards or to order
persons responsible for the situation to do so. Under CERCLA, generators and
transporters of hazardous substances, as well as past and present owners and
operators of hazardous waste sites, are made strictly, jointly and severally
liable for the cleanup costs of waste at sites, most of which are listed by the
Federal Agency on the National Priorities List (NPL). These responsible parties
can be ordered to perform a cleanup, can be sued for costs associated with a
Federal Agency directed cleanup, or may voluntarily settle with the federal
government concerning their liability for cleanup costs, or may voluntarily
begin a site investigation and site remediation prior to listing on the NPL
under state oversight. Various states, including Illinois, have enacted
statutes which contain provisions substantially similar to CERCLA. The Company
and its subsidiaries are or are likely to become parties to proceedings
initiated by the Federal Agency, state agencies and/or other responsible
parties under CERCLA with respect to a number of sites, including manufactured
gas plant (MGP) sites, or may voluntarily undertake to investigate and
remediate sites for which they may be liable under CERCLA. MGPs manufactured
gas in Illinois from approximately 1850 to 1950. The Company generally did not
operate MGPs as a corporate entity but did, however, acquire MGP sites as part
of the absorption of smaller utilities. Approximately half of these sites were
transferred to Northern Illinois Gas Company as part of a general conveyance in
1954. The Company also acquired former MGP sites as vacant real estate on which
Company facilities have been constructed. To date, the Company has identified
44 former MGP sites for which it may be liable for remediation. The Company
presently estimates that its costs of former MGP site investigation and
remediation will aggregate from $25 million to $150 million in current-year
(1994) dollars. It is expected that the costs associated with investigation and
remediation of former MGP sites will be incurred over a period of approximately
20 to 30 years. Because the Company is not able to determine the most probable
liability for such MGP costs, in accordance with accounting standards, the
Company has recorded a reserve as of December 31, 1993 and June 30, 1994 of
approximately $25 million, which reflects the low
46
<PAGE>
end of the range of its estimate of the liability associated with former MGP
sites. In addition, as of December 31, 1993 and June 30, 1994, the Company has
recorded a reserve of $5 million and $8 million, respectively, representing its
estimate of the liability associated with cleanup costs of remediation sites
other than former MGP sites. The Company presently estimates that its costs of
investigating and remediating the former MGP and other remediation sites
pursuant to CERCLA and state environmental laws will not have a material impact
on the financial position or results of operations of the Company. These cost
estimates are based on currently available information regarding the
responsible parties likely to share in the costs of responding to site
contamination, the extent of contamination at sites for which the investigation
has not yet been completed and the cleanup levels to which sites are expected
to have to be remediated.
On July 17, 1991, the United States Government (Government) filed a complaint
in U.S. District Court alleging that the Company and four other defendants are
"potentially responsible parties" (PRPs) under CERCLA for remediation costs
associated with surface, soil and groundwater contamination alleged to have
occurred from the disposal by other persons of hazardous wastes at a site
located near the Company's Byron station in Byron, Illinois. The Government
alleges that a portion of the site is owned by the Company. The Government is
presently seeking reimbursement from the PRPs for past study and response costs
associated with the site of approximately $7 million. The Company is currently
pursuing cost recovery from other PRPs that have been identified at this site.
On October 16, 1992, the Federal Agency notified the Company and four other
companies, including the site operator, that they were PRPs under CERCLA for
the costs associated with the investigation and removal of contaminated soil at
the Elgin Salvage and Supply site in Elgin, Illinois. On April 19, 1993, the
Federal Agency issued an order under Section 106 of CERCLA to the Company and
the other parties to investigate and remove the contamination from the site.
The Company sent substantial amounts of scrap cable and other scrap metal to
the site. The site investigation and remediation is currently estimated to be
approximately $6 to $8 million. The site operator claims to be unable to fund
more than a small share of the removal costs. Consequently, the other parties
have agreed to an interim allocation of the removal costs. The interim
agreement allocates 55% of the removal costs to the Company. The Company and
the other PRPs have filed a cost recovery action against the site operator and
the site owners to require that they provide their share of the remediation
costs.
In the operation of its electric distribution system, the Company has
utilized equipment containing polychlorinated biphenyls (PCBs). Such equipment
included transformers located in customer-owned buildings and in sidewalk
vaults. Under regulations adopted by the Federal Agency, these transformers
containing PCBs were required to be modified (with non-PCB fluid) or be
replaced. The Company has completed the replacement of over 2,000 PCB fluid
transformers that were located in or near commercial buildings and were subject
to the federal regulations. The estimated cost to the Company of replacing or
modifying these transformers and disposing of the PCB fluid was approximately
$120 million, which had been expended through the end of 1993. Some of the
Company's electrical equipment containing PCBs was sent to scrap and salvage
facilities and, as a result, the Company may be liable for penalties and for
the costs of cleanup of those facilities. An accident or spill involving PCB
oil-filled electrical equipment, resulting in exposure of persons or property
to PCBs or their by-products, could result in material liability claims against
the Company.
In September 1990, the IPCB replaced existing landfill regulations with new,
more stringent design and performance standards. These regulations are expected
to increase the cost to the Company for disposal of coal combustion by-products
at its Joliet station. At Joliet, an existing landfill utilized for disposal of
coal ash may require the installation by 1997 of engineered retrofits designed
to protect groundwater. The Company intends to request exemptions from certain
of the new regulations from the IPCB. If its request is denied, then
alternative landfill siting, commercial disposal, or retrofitting of the
existing facility could result in significant increases in disposal
expenditures.
47
<PAGE>
The outcome of many of the regulatory proceedings referred to above, if not
favorable, could have a material adverse effect on the Company's future
business and operating results.
An unresolved issue is whether exposure to electric and magnetic fields
(EMFs) may result in adverse health effects or damage to the environment. EMFs
are produced by virtually all devices carrying or utilizing electricity,
including transmission and distribution lines as well as home appliances. If
regulations are adopted related to EMFs, they could affect the construction and
operation of electrical equipment, including transmission and distribution
lines and the cost of such equipment. The Company cannot predict the effect on
the cost of such equipment or operations if new regulations related to EMFs are
adopted. In the absence of such regulations, EMFs have nonetheless become an
issue in siting facilities and in other land use contexts. Litigation has been
filed in a variety of locations against a variety of defendants (including the
Company) alleging that the presence or use of electrical equipment has had an
adverse effect on the health of persons. If plaintiffs are successful in
litigation of this type and it becomes widespread, the impact on the Company
and on the electric utility industry is not predictable, but could be severe.
From time to time, the companies are, or are claimed to be, in violation of
or in default under orders, statutes, rules or regulations relating to
environmental controls and other matters, compliance plans imposed upon or
agreed to by them or permits issued by various state and federal agencies for
the construction or operation of the companies' facilities. The Company does
not believe, so far as it now foresees, that such violations or defaults will
have a material adverse effect on its future business and operating results,
except for events otherwise described in the Company's Annual Report on Form
10-K for the year ended December 31, 1993 or in this Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1994, which could have such an
effect.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company's annual meeting of shareholders was held on May 10, 1994. At
that meeting, each of the persons named in the table below was elected as a
director. Vote totals for each of the directors are shown below:
<TABLE>
<CAPTION>
SHARES SHARES
NOMINEE VOTED FOR WITHHELD FROM
------- ----------- -------------
<S> <C> <C>
Jean Allard........................................... 195,539,465 3,255,661
James W. Compton...................................... 195,561,313 3,233,813
Sue L. Gin............................................ 195,665,973 3,129,153
Donald P. Jacobs...................................... 195,773,219 3,021,907
George E. Johnson..................................... 195,623,870 3,171,256
Harvey Kapnick........................................ 195,751,415 3,043,711
Byron Lee, Jr. ....................................... 195,856,763 2,938,363
Edward A. Mason....................................... 195,674,749 3,120,377
James J. O'Connor..................................... 195,598,468 3,196,658
Frank A. Olson........................................ 195,870,557 2,924,569
Samuel K. Skinner..................................... 195,483,666 3,311,460
</TABLE>
At the meeting, the Agreement and Plan of Merger was approved. The plan
allows the Company to create a holding company structure, which will allow the
Company's affiliates to compete with unregulated competition to provide energy
services. A total of 171,720,144 shares voted to approve the plan, 3,270,241
shares voted against and 4,642,050 shares abstained (there were 19,162,691
broker non-votes on this item). In addition, shareholders approved the
amendment of the Company's Restated Articles of Incorporation. A total of
179,139,176 shares voted to approve the amendment, 14,487,915 shares voted
against and 5,168,035 shares abstained. Also at the meeting, the appointment by
the Company's Board of Directors of Arthur Andersen & Co. as auditors for the
year 1994 was approved. A total of 195,003,594 shares voted to approve the
appointment, 1,833,602 shares voted against and 1,957,930 shares abstained.
48
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ------------------------------------------------------------------
<C> <S>
(10)-1 Outside director stock award plan.
(10)-2 Excess benefit savings plan.
(12) Statement computing ratios of earnings to fixed charges and ratios
of earnings to fixed charges and preferred and preference stock
dividend requirements.
(23) Consent of independent public accountants.
</TABLE>
(b) Reports on Form 8-K
A Current Report on Form 8-K dated June 24, 1994 was filed containing a
press release regarding the Company's results of operations for the five
months and twelve months ended May 31, 1994.
49
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized on the 9th day of August, 1994.
Commonwealth Edison Company
Registrant
Roger F. Kovack
By __________________________________
Roger F. Kovack
Comptroller
(Chief accounting officer and
officer duly authorized to sign on
behalf of the registrant)
50
<PAGE>
COMMONWEALTH EDISON COMPANY
---------------------------
EXHIBIT INDEX
-------------
Exhibits filed with or incorporated by reference in Form 10-Q for the quarterly
period ended June 30, 1994:
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------- -------------------------------------------
<S> <C>
(10)-1 Outside director stock award plan.
(10)-2 Excess benefit savings plan.
(12) Statement computing ratios of earnings
to fixed charges and ratios of earnings to
fixed charges and preferred and preference
stock dividend requirements.
(23) Consent of independent public accountants.
</TABLE>
<PAGE>
Exhibit (10)-1
Commonwealth Edison Company
Form 10-Q File No. 1-1839
COMMONWEALTH EDISON COMPANY
OUTSIDE DIRECTOR STOCK AWARD PLAN
---------------------------------
1. Purpose: Commonwealth Edison Company (the "Company") wishes to
establish an Outside Director Stock Award Plan (the "Plan"). The purpose of the
Plan is to increase the proprietary interest of directors who are not employees
of the Company or any of its subsidiaries ("Outside Directors") through the
grant of shares of Common Stock, $12.50 par value ("Common Stock"), of the
Company.
2. Administration: The Board of Directors of the Company (the "Board")
shall administer and interpret the provisions of this Plan. All determinations
of the Board with respect to the Plan shall be final and binding upon all
persons.
3. Grants: At the beginning of the month immediately following each
Annual Meeting of Shareholders of the Company, beginning with the meeting to be
held on May 10, 1994 (each a Grant Date"), each Outside Director then in office
shall be granted 100 shares of Common Stock.
In the case of an Outside Director who is elected or appointed as a
Director of the Company other than at the Annual Meeting of Shareholders in any
year, such Outside Director shall be granted 100 shares of Common Stock promptly
following such election or appointment.
4. Terms and Conditions:
(a) Shares of Common Stock to be granted pursuant to the Plan will
be purchased on behalf of the recipient in the open market in accordance with
applicable rules and regulations.
(b) No shares of Common Stock received under the Plan may be sold,
assigned, transferred or otherwise disposed of for at least six months after
the applicable Grant Date, except in the event of death or disability of the
Outside Director.
(c) A grant of Common Stock hereunder shall be disclosed in the
Company's proxy statement for the year in which the grant was made; and the
Outside Director, as of the applicable Grant Date of such Common Stock, shall
become the record holder of such Common Stock and shall immediately become
entitled to all the rights and privileges accorded such Common Stock. In
addition, such Common Stock shall be shown
<PAGE>
- 2 -
on the appropriate form for reporting beneficial ownership of securities
pursuant to Section 16 of the Securities Exchange Act of 1934, as amended.
(d) The value of any Common Stock granted to an Outside Director
under this Plan is not intended to be taken into account, and consequently
shall be excluded, in determining the amount of any retirement benefit
otherwise payable to such Outside Director under any of the Company's
retirement plans, including the Commonwealth Edison Company Retirement Plan
for Directors. The acceptance by an Outside Director of any grant of Common
Stock under this Plan shall constitute such Outside Director's agreement to,
and confirmation of, such exclusion.
(e) The Board shall appropriately adjust the number of shares for
which grants may be made under this Plan in the event of any reorganization,
recapitalization, stock split, reverse stock split, stock dividend, exchange
or combination of shares, merger (other than in connection with a transaction
described in Section 4(f) hereof), consolidation, rights offering, or other
relevant changes in capitalization.
(f) In the event that the Company becomes a majority owned
subsidiary of another corporation, then all references herein to the "Company"
shall mean such parent corporation, and all references herein to "Common
Stock" shall mean such parent corporation's common stock.
5. Regulatory Compliance: The delivery of any shares under this Plan may
be postponed by the Company for such period as may be required to comply with
Federal or state securities laws, national securities exchange requirements or
any other law or regulation applicable to the delivery of such shares. The
Company shall not be obligated to deliver any shares under this Plan if such
delivery shall constitute a violation of any provision of any law or any
regulation of any governmental authority or any national securities exchange.
In addition, the shares, when delivered, may be subject to conditions, including
transfer restrictions, if such conditions are required to comply with applicable
securities law.
6. No Right to Continue as Outside Director: Nothing contained in this
Plan shall be construed as conferring upon an Outside Director any right to
continue to be associated with the Company as an Outside Director or in any
other capacity.
<PAGE>
- 3 -
7. Amendment or Discontinuance: The Board may amend, rescind or
terminate this Plan as shall in its judgment be advisable.
8. Taxes: The Company shall not be required to, and shall not, withhold
or otherwise pay on behalf of any Outside Director any Federal, state, local or
other taxes arising in connection with a grant of Common Stock under this Plan.
The payment of any such taxes shall be the sole responsibility of each Outside
Director.
9. Governing Law: This Plan and all determinations made and actions
taken pursuant hereto shall be governed by the internal laws of the State of
Illinois, except as Federal law may apply.
<PAGE>
Exhibit (10)-2
Commonwealth Edison Company
Form 10-Q File No. 1-1839
COMMONWEALTH EDISON
EXCESS BENEFIT SAVINGS PLAN
WHEREAS, Commonwealth Edison Company, an Illinois corporation (the
"Company"), has for many years maintained the Commonwealth Edison Employee
Savings and Investment Plan (the "ESIP") for the benefit of its employes and
employes of certain of its affiliates which have, with the consent of the
Company, adopted the ESIP (the "Employers");
WHEREAS, section 401(a)(17) of the Internal Revenue Code of 1986, as
amended (the "Code"), limits the amount of annual compensation that may be taken
into account under the ESIP to $150,000 (as adjusted for increases in the cost
of living) (the "Compensation Limit");
WHEREAS, section 402(g) of the Code limits the contributions to a
participant's Compensation Conversion Account under the ESIP to $7,000 (adjusted
for increases in the cost of living) (the "Dollar Limit");
WHEREAS, sections 401(k) and 401(m) of the Code (the "Before-Tax
Contribution Limit" and the "Matching Contribution Limit," respectively) may
limit the amount of contributions which may be allocated to the Compensation
Conversion Accounts and Employer Contribution Accounts of certain highly
compensated participants under the ESIP;
<PAGE>
WHEREAS, section 415 of the Code requires that allocations to
participants' accounts under the ESIP generally be limited to the lesser of
$30,000 and 25% of a participant's compensation and in certain other respects
(the "Section 415 Limit"); and
WHEREAS, the Company and the Employers desire to provide benefits to
"a select group of management or highly compensated employes," within the
meaning of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), equal to the contributions which, but for sections 401(a)(17),
401(k), 401(m), 402(g) and 415 of the Code would have been contributed to the
ESIP.
NOW, THEREFORE, effective August 1, 1994, the Company and the
Employers hereby agree as follows:
1. Definitions. All capitalized terms used herein shall have the
respective meanings assigned to such terms by the ESIP, except as otherwise set
forth in the preamble to or text of this Plan or below:
(a) Plan. This Commonwealth Edison Excess Benefit Savings Plan, as
from time to time amended.
(b) Participant. For any Plan Year, an employe of the Company or an
Employer who is an "Active Participant" in the ESIP for all or a
portion of a Plan Year and:
(i) who is one of the following: (A) an officer of the Company or
any Employer, (B) included on an Employer's "Executive" payroll
or (C) classified
- 2 -
<PAGE>
as management personnel in job grade 12 or above, or if an
Employer maintains a system of pay classification different from
that of the Company, is in a classification determined by such
Employer and the Company to be comparable to the above-described
eligible classifications of the Company; and
(ii) who elects to participate in this Plan for a calendar year
pursuant to paragraph 2.
(c) Account. An account established on behalf of a Participant
pursuant to this Plan.
(d) Valuation Date. The date as of which interest is credited to an
Account pursuant to paragraph 4 of this Plan.
2. Participant Elections. An election to participate for a calendar
year shall be made (i) for 1994, on or before August 1, 1994, (ii) for the
calendar year in which an Employee first becomes eligible to become a
Participant, within 30 days after such Employee becomes so eligible and (iii)
for any other calendar year, by December 31 of the preceding calendar year.
Each election to participate in the Plan for a calendar year shall authorize the
Participant's Employer to reduce the Participant's Compensation by a whole
percentage not in excess of ten, and such election shall apply to Compensation
payable after both (1) the effective date of such election, as indicated
thereon, and (2) the date on which the Participant's Compensation is no longer
reduced by reason of contributions to his or her Compensation Conversion Account
under the ESIP on account of the limits imposed by:
(a) The last two sentences of Section 2.1(i) of the ESIP, relating to
the Compensation Limit;
- 3 -
<PAGE>
(b) The third paragraph of Section 4.2 of the ESIP, relating to the
Dollar Limit;
(c) Section 4.4 of the ESIP, relating to the Section 415 Limit; and
(d) Section 4.5 of the ESIP relating to the Before Tax Contribution
Limit and the Matching Contribution Limit.
Notwithstanding the foregoing, if (i) a Participant's election under Section 4.2
of the ESIP at any time during 1994 and prior to the effective date of the Plan
was for less than the maximum amount allowed under the terms of the ESIP or (ii)
a Participant's contributions to his or her Compensation Conversion Account for
1994 ceased on account of any of the above-described limitations prior to the
effective date of the Participant's election for such year and, in either case,
(iii) the Participant's election under Section 4.2 as of the effective date of
the Plan is for the maximum amount allowed under the terms of the ESIP, then the
Participant's election for 1994 shall, if so designated by the Participant, be
applied by determining the amount of Compensation reduction that would have been
made under the ESIP and this Plan had (x) the Participant's election under
Section 4.2 of the ESIP been for the percentage elected under the terms of the
Plan throughout 1994, or (y) the Participant's election becomes effective at the
time the Participant's Contributions to his or her Compensation Conversion
Account ceased, whichever is the larger (the "Make-Up Amount"), and adding a pro
rata portion of the Make-Up Amount to the amount by which the Participant's
Compensation after the effective date of the Plan is otherwise reduced pursuant
to such election.
- 4 -
<PAGE>
3. Accounts. There shall be established on the books of the Company
and of each Employer an Employee Account and an Employer Account in the name and
on behalf of each Participant who is an employe of the Company or such Employer,
as the case may be. Each Employee Account shall be credited with the amounts by
which the Participant's Compensation is reduced pursuant to his or her election
under paragraph 2 of this Plan as of the time such Compensation would have been
paid to the Participant but for such election. Each Employer Account shall be
credited with an amount equal to the matching contributions that would have been
allocated to the Participant's Employer Contribution Account under Section 4.3
of the ESIP in respect of amounts credited to the Participant's Employee Account
pursuant to the preceding sentence had such amounts been allocated to the
Participant's Compensation Conversion Account, but after taking into account any
such matching contributions made under Section 4.3 of the ESIP in respect of any
contributions by the Participant to his or her Basic Savings Accounts as of the
date on which the related amount is credited to his or her Employee Account.
4. Interest on Accounts. The Company and each Employer shall credit
to each Account established on its books pursuant to paragraph 3 of this Plan
interest on the balance of such Account as of the end of each calendar month
while any amounts are credited thereto at an annual rate equal to the imbedded
rate of interest then being accrued by the Company on
- 5 -
<PAGE>
its long-term debt, as determined from time to time by the Comptroller of the
Company.
5. Vesting. Amounts credited to a Participant's Employee Account
pursuant to the terms of this Plan shall be fully vested and not subject to
forfeiture for any reason. Amounts credited to a Participant's Employer Account
pursuant to this Plan shall become vested at the same time and to the same
extent as the contributions credited to his or her Employer Contribution Account
under ESIP.
6. Distributions. Payment in respect of a Participant's Accounts
under this Plan shall be made at such time as the Committee shall, in its sole
discretion, determine, but in no event later than 60 days after the close of the
calendar year in which the Participant's employment by the Company and all
Employers terminates. Such payment shall be based on the balance of his
Accounts as of the Valuation Date, coinciding with or immediately preceding the
payment date and shall be made in a single lump sum payment.
7. Beneficiaries. If a Participant shall die while any amount
remains credited to the Accounts established on his behalf pursuant to paragraph
3 of this Plan, such amount shall be paid as provided in paragraph 6 of this
Plan to the beneficiary or beneficiaries as the Participant may, from time to
time, designate in writing delivered to the Committee. An Participant
- 6 -
<PAGE>
may revoke or change his beneficiary designation at any time in writing
delivered to the Committee. If a Participant does not designate a beneficiary
under this Plan, or if no designated beneficiary survives the Participant, the
balance of his Accounts shall be paid to the person or persons entitled to his
Account under Section 7.6 of the ESIP (or who would be so entitled if there were
then an amount remaining unpaid under the ESIP).
8. Amendment and Termination. This Plan shall be subject to the
same reserved powers of amendment and termination as the ESIP (without regard to
any limitations imposed on such powers by the Code or ERISA), except that no
such amendment or termination, other than as may be necessary to comply with
Section 401(k)(4)(A) of the Code, shall reduce or otherwise adversely affect the
rights of Participants in respect of amounts credited to their Accounts as of
the date of such amendment or termination.
9. Application of ERISA. This Plan is intended to be an "excess
benefit plan" within the meaning of section 3(36) of ERISA and an unfunded plan
maintained primarily for the purpose of providing deferred compensation to a
select group of management or highly compensated employees within the meaning of
sections 201(2), 301(a)(3) and 401(a)(1) of ERISA and Department of Labor
Regulation (S) 2520.104-23. This Plan shall not be a funded plan, and the
Company and the Employers shall be under no obligation to set aside any funds
for the purpose of making
- 7 -
<PAGE>
payments under this Plan. Any payments hereunder shall be made out of the
general assets of the Company and the Employers.
10. Administration. The Committee shall be charged with the
administration of this Plan and shall have the same powers and duties, and shall
be subject to the same limitations, as are described in Article IX of the ESIP.
11. Nonassignment of Benefits. Notwithstanding anything contained in
the ESIP to the contrary, it shall be a condition of the payment of benefits
under this Plan that neither such benefits nor any portion thereof shall be
assigned, alienated or transferred to any person voluntarily or by operation of
any law, including any assignment, division or awarding of property under state
domestic relations law (including community property law). If any person shall
endeavor or purport to make any such assignment, alienation or transfer, the
amount otherwise provided hereunder which is the subject of such assignment,
alienation or transfer shall cease to be payable to any person.
12. No Guaranty of Employment. Nothing contained in this Plan shall
be construed as a contract of employment between any Employer and any employe or
as conferring a right on any employe to be continued in the employment of any
Employer.
- 8 -
<PAGE>
13. Adoption By Employers. Any corporation which is or becomes an
"Employer" under the ESIP may, with the consent of the Company, become an
Employer under this Plan by delivery to the Company of a resolution of its board
of directors or duly authorized committee to such effect, which resolution shall
specify the first Plan Year under the ESIP for which this Plan shall be
effective in respect of the employes of such corporation.
14. Miscellaneous. (a) Certain ESIP Provisions. Except as
otherwise provided herein, the miscellaneous provisions contained in Sections
10.5 (relating to notice of address) and 10.6 (relating to applicable law) of
the ESIP are hereby incorporated herein by reference, and shall be applicable as
if such provisions were set forth herein.
(b) FICA Taxes. For each calendar year in which a Participant's
compensation is reduced pursuant to this Plan, his or her Employer shall
withhold from the Participant's compensation the taxes imposed upon the
Participant pursuant to section 3121 of the Code in respect of (i) the amount by
which the Participant's Compensation is reduced and the related amount credited
to his or her Employee Account; (ii) the amount credited to the Participant's
Employer Account upon the vesting thereof and (iii) the interest credited to the
Accounts upon the vesting thereof and to the extent required by law.
- 9 -
<PAGE>
(c) Successors and Assigns. The provisions of this Plan shall bind
and inure to the benefit of each Employer and its successors and assigns, as
well as each Participant and his or her beneficiaries and successors.
IN WITNESS WHEREOF, Commonwealth Edison Company has caused this
instrument to be executed in its name and its corporate seal to be hereunder
affixed on this 1st day of July, 1994.
COMMONWEALTH EDISON COMPANY
By: /s/ James J. O'Connor
------------------------------
Title: Chairman
-------------------------
(Corporate Seal)
ATTEST:
/s/ David A. Scholz
------------------------------
Title: Secretary
-----------------------
- 10 -
<PAGE>
Exhibit (12)
Commonwealth Edison Company
Form 10-Q File No. 1-1839
Commonwealth Edison Company and Subsidiary Companies Consolidated
-----------------------------------------------------------------
Computation of Ratios of Earnings to Fixed Charges
and Ratios of Earnings to Fixed Charges and
Preferred and Preference Stock Dividend Requirements
--------------------------------------------------------
(Thousands of Dollars)
<TABLE>
<CAPTION>
Twelve Months Ended
-------------------------
Line December 31, June 30,
No. 1993 1994
- ---- ------------- ---------
<S> <C> <C>
1 Net income $112,440 $ 3,844
-------- --------
2 Net provisions for income taxes and investment tax credits deferred
3 charged to-
4 Operations $ 65,827 $ 31,128
5 Cumulative effect of change in accounting for income taxes (9,738) -
6 Other income (30,753) (45,720)
-------- --------
7 $ 25,336 $(14,592)
-------- --------
8 Fixed charges-
9 Interest on debt $651,639 $630,494
10 Estimated interest component of nuclear fuel and
11 other lease payments, rentals and other interest 49,021 54,985
12 Amortization of debt discount, premium and expense 20,966 22,853
-------- --------
13 $721,626 $708,332
-------- --------
14 Preferred and preference stock dividend requirements-
15 Provisions for preferred and preference stock dividends $ 66,052 $ 63,401
16 Taxes on income required to meet provisions for
17 preferred and preference stock dividends 43,596 41,863
-------- --------
18 $109,648 $105,264
-------- --------
19 Fixed charges and preferred and preference stock
20 dividend requirements $831,274 $813,596
-------- --------
21 Earned for fixed charges and preferred and preference stock
22 dividend requirements $859,402 $697,584
-------- --------
23 Ratios of earnings to fixed charges (line 22 divided by line 13) 1.19 0.98
==== ====
24 Ratios of earnings to fixed charges and preferred and preference
25 stock dividend requirements (line 22 divided by line 20) 1.03 0.86
==== ====
</TABLE>
<PAGE>
Exhibit (23)
Commonwealth Edison Company
Form 10-Q File No. 1-1839
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the incorporation
by reference of our report included in this Form 10-Q for the quarterly period
ended June 30, 1994, into Commonwealth Edison Company's previously filed
prospectuses as follows: (1) prospectus dated June 1, 1988, constituting part of
Form S-8 Registration Statement File No. 2-76921 (relating to the Company's
Employe Stock Purchase Plan); (2) prospectus dated August 1, 1992, constituting
part of Form S-8 Registration Statement File Nos. 2-81592 and 33-5061, as
amended (relating to the Company's Employe Savings and Investment Plan); (3)
prospectus dated August 21, 1986, constituting part of Form S-3 Registration
Statement File No. 33-6879, as amended (relating to the Company's Debt
Securities and Common Stock); (4) prospectus dated January 7, 1994, constituting
part of Form S-3 Registration Statement File No. 33-51379 (relating to the
Company's Debt Securities and Cumulative Preference Stock); and (5) prospectus
dated March 18, 1994, constituting part of Form S-4 Registration Statement File
No. 33-52109, as amended (relating to Common Stock of Unicom Corporation). We
also consent to the application of our report to the ratios of earnings to fixed
charges and the ratios of earnings to fixed charges and preferred and preference
stock dividend requirements for each of the twelve months ended December 31,
1993 and June 30, 1994 appearing on page 42 of this Form 10-Q.
ARTHUR ANDERSEN & CO.
Chicago, Illinois
August 9, 1994
