<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 September 30, 1995
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
<TABLE>
<CAPTION>
COMMISSION
FILE REGISTRANT; STATE OF INCORPORATION; IRS EMPLOYER
NUMBER ADDRESS; AND TELEPHONE NUMBER IDENTIFICATION NO.
---------- ----------------------------------- ------------------
<C> <S> <C>
1-11375 UNICOM CORPORATION 36-3961038
(an Illinois corporation)
37th Floor, 10 South Dearborn Street
Post Office Box A-3005
Chicago, Illinois 60690-3005
312/394-7399
1-1839 COMMONWEALTH EDISON COMPANY 36-0938600
(an Illinois corporation)
37th Floor, 10 South Dearborn Street
Post Office Box 767
Chicago, Illinois 60690-0767
312/394-4321
</TABLE>
Indicate by check mark whether the registrants (1) have 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) have been subject to such filing
requirements for the past 90 days. Yes X No
Common Stock outstanding at October 31, 1995:
Unicom Corporation 214,820,573 shares
Commonwealth Edison Company 214,194,330 shares
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
UNICOM CORPORATION
AND
COMMONWEALTH EDISON COMPANY
QUARTERLY REPORTS ON FORM 10-Q
TO THE SECURITIES AND EXCHANGE COMMISSION
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1995
This document contains the Quarterly Reports on Form 10-Q for the quarterly
period ended September 30, 1995 for each of Unicom Corporation and Commonwealth
Edison Company. Information contained herein relating to an individual
registrant is filed by such registrant on its own behalf. Accordingly, except
for its subsidiaries, Commonwealth Edison Company makes no representation as to
information relating to Unicom Corporation or to any other companies affiliated
with Unicom Corporation.
INDEX
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Definitions.............................................................. 3
PART I. FINANCIAL INFORMATION
Unicom Corporation and Subsidiary Companies:
Financial Statements--
Report of Independent Public Accountants............................. 4
Statements of Consolidated Income for the three months, nine months
and twelve months ended September 30, 1994 and 1995................. 5
Consolidated Balance Sheets--December 31, 1994 and September 30,
1995................................................................ 6-7
Statements of Consolidated Capitalization--December 31, 1994 and Sep-
tember 30, 1995..................................................... 8
Statements of Consolidated Retained Earnings for the three months,
nine months and twelve months ended September 30, 1994 and 1995..... 9
Statements of Consolidated Cash Flows for the three months, nine
months and twelve months ended September 30, 1994 and 1995.......... 10
Notes to Financial Statements........................................ 11-30
Management's Discussion and Analysis of Financial Condition and Results
of Operations......................................................... 31-42
Commonwealth Edison Company and Subsidiary Companies:
Financial Statements--
Report of Independent Public Accountants............................. 44
Statements of Consolidated Income for the three months, nine months
and twelve months ended September 30, 1994 and 1995................. 45
Consolidated Balance Sheets--December 31, 1994 and September 30,
1995................................................................ 46-47
Statements of Consolidated Capitalization--December 31, 1994 and Sep-
tember 30, 1995..................................................... 48
Statements of Consolidated Retained Earnings for the three months,
nine months and twelve months ended September 30, 1994 and 1995..... 49
Statements of Consolidated Premium on Common Stock and Other Paid-In
Capital for the three months, nine months and twelve months ended
September 30, 1994 and 1995......................................... 49
Statements of Consolidated Cash Flows for the three months, nine
months and twelve months ended September 30, 1994 and 1995.......... 50
Notes to Financial Statements........................................ 51-55
Management's Discussion and Analysis of Financial Condition and Results
of Operations......................................................... 56
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................. 57-62
Item 6. Exhibits and Reports on Form 8-K............................... 63
SIGNATURES............................................................... 64
</TABLE>
2
<PAGE>
DEFINITIONS
The following terms are used in this document with the following meanings:
<TABLE>
<CAPTION>
TERM MEANING
----------------------- ------------------------------------------------------
<C> <S>
AFUDC Allowance for funds used during construction
AMT Alternative minimum tax
CERCLA Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended
CFC Chlorofluorocarbon
Circuit Court Circuit Court of Cook County, Illinois
Clean Air Amendments Clean Air Act Amendments of 1990
ComEd Commonwealth Edison Company
Cotter Cotter Corporation, which is a wholly-owned subsidiary
of ComEd.
DOE U.S. Department of Energy
EEOC Equal Employment Opportunity Commission
EMFs Electric and magnetic fields
FASB Financial Accounting Standards Board
FERC Federal Energy Regulatory Commission
Fuel Matters Settlement A settlement relating to the ICC fuel reconciliation
proceedings involving ComEd for the period from 1985
through 1988 and to future challenges by the settling
parties to the prudence of ComEd's western coal costs
for the period from 1989 through 1992.
ICC Illinois Commerce Commission
Illinois EPA Illinois Environmental Protection Agency
Indiana Company Commonwealth Edison Company of Indiana, Inc., which is
a wholly-owned subsidiary of ComEd.
IPCB Illinois Pollution Control Board
MAIN Mid-America Interconnected Network
MGP Manufactured gas plant
NEIL Nuclear Electric Insurance Limited
NML Nuclear Mutual Limited
NOPR Notice of Proposed Rulemaking issued by the FERC
NPDES National Pollutant Discharge Elimination System
NPL National Priorities List
NRC Nuclear Regulatory Commission
PCBs Polychlorinated biphenyls
PRPs Potentially responsible parties under CERCLA
Rate Matters Settlement A settlement concerning the proceedings relating to
ComEd's 1985 and 1991 ICC rate orders (which orders
related to, among other things, the recovery of costs
associated with ComEd's four most recently completed
nuclear generating units), the proceedings related to
the reduction in the difference between ComEd's
summer and non-summer residential rates that was
effected in the summer of 1988, outstanding issues
related to the appropriate interest rate and rate
design to be applied to a refund made by ComEd during
1990 related to a 1988 ICC rate order, and matters
related to a rider to ComEd's rates that it 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.
Rate Order ICC rate order issued on January 9, 1995, as
subsequently modified
Remand Order ICC rate order issued in January 1993, as subsequently
modified
SEC Securities and Exchange Commission
SFAS Statement of Financial Accounting Standards
Trust ComEd Financing I, which is a wholly-owned subsidiary
trust of ComEd.
Unicom Unicom Corporation
Unicom Enterprises Unicom Enterprises Inc., which is a wholly-owned
subsidiary of Unicom.
Unicom Thermal Unicom Thermal Technologies Inc., which is a wholly-
owned subsidiary of Unicom Enterprises.
Units ComEd's nuclear generating units known as Byron Unit 2
and Braidwood Units 1 and 2
U.S. EPA U.S. Environmental Protection Agency
Westinghouse Westinghouse Electric Corporation
</TABLE>
3
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Unicom Corporation:
We have audited the accompanying consolidated balance sheets and statements
of consolidated capitalization of Unicom Corporation (an Illinois corporation)
and subsidiary companies as of December 31, 1994 and September 30, 1995, and
the related statements of consolidated income, retained earnings and cash flows
for the three-month, nine-month and twelve-month periods ended September 30,
1994 and 1995. 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 Unicom Corporation and
subsidiary companies as of December 31, 1994 and September 30, 1995, and the
results of their operations and their cash flows for the three-month, nine-
month and twelve-month periods ended September 30, 1994 and 1995, in conformity
with generally accepted accounting principles.
Arthur Andersen LLP
Chicago, Illinois
November 8, 1995
4
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED INCOME
The following Statements of Consolidated Income for the three months, nine
months and twelve months ended September 30, 1994 and 1995 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, competition, 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 NINE MONTHS ENDED TWELVE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30
---------------------- ---------------------- -----------------------
1994 1995 1994 1995 1994 1995
---------- ---------- ---------- ---------- ----------- ----------
(THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues:
Operating revenues..... $1,857,863 $2,190,862 $4,825,753 $5,328,494 $ 6,336,042 $6,795,916
Provisions for revenue
refunds............... (2,587) -- (13,561) 25 (1,049,790) (2,324)
---------- ---------- ---------- ---------- ----------- ----------
$1,855,276 $2,190,862 $4,812,192 $5,328,519 $ 5,286,252 $6,793,592
---------- ---------- ---------- ---------- ----------- ----------
Operating Expenses and
Taxes:
Fuel................... $ 288,990 $ 322,990 $ 814,974 $ 850,422 $ 1,116,444 $1,085,300
Purchased power........ 11,633 22,623 56,466 32,609 60,011 35,267
Deferred
(under)/overrecovered
energy costs--net .... 9,508 (9,840) (11,451) (8,578) (3,624) 4,813
Operation.............. 359,235 385,855 1,152,233 1,143,280 1,543,912 1,524,033
Maintenance............ 122,481 133,312 458,125 418,235 610,600 521,430
Depreciation........... 221,966 225,039 665,835 674,991 883,043 896,629
Recovery of regulatory
assets................ 3,818 3,818 11,635 11,454 14,574 15,272
Taxes (except income).. 210,879 240,048 599,238 639,721 727,167 828,278
Income taxes--
Current--Federal...... 81,337 143,368 137,804 244,379 (72,366) 263,004
--State............... (846) 51,877 979 79,984 (55,067) 80,918
Deferred--Federal--
net.................. 78,466 94,423 63,414 133,771 111,935 173,749
--State--net.......... 36,010 2,520 47,634 10,581 72,314 27,963
Investment tax credits
deferred--net......... (7,195) (7,177) (21,620) (21,535) (29,142) (28,672)
---------- ---------- ---------- ---------- ----------- ----------
$1,416,282 $1,608,856 $3,975,266 $4,209,314 $ 4,979,801 $5,427,984
---------- ---------- ---------- ---------- ----------- ----------
Operating Income........ $ 438,994 $ 582,006 $ 836,926 $1,119,205 $ 306,451 $1,365,608
---------- ---------- ---------- ---------- ----------- ----------
Other Income and
(Deductions):
Interest on long-term
debt.................. $ (154,420) $ (146,295) $ (467,413) $ (449,401) $ (623,525) $ (603,213)
Interest on notes
payable............... (226) (2,101) (415) (2,473) (502) (2,616)
Allowance for funds
used during
construction--
Borrowed funds........ 4,336 2,674 14,831 7,551 20,038 11,631
Equity funds.......... 5,215 2,834 17,641 8,703 24,189 13,690
Income taxes applicable
to nonoperating
activities............ 3,050 1,989 23,620 2,458 35,409 5,911
Deferred carrying
charges............... -- -- -- -- 438,183 --
Interest and other
costs for 1993
Settlements........... (3,368) -- (21,261) (61) (119,935) (264)
Provision for dividends
on--
Preferred and
preference stocks of
ComEd................ (16,966) (16,674) (47,994) (50,447) (63,801) (67,380)
ComEd-obligated
mandatorily
redeemable preferred
securities of ComEd
Financing I.......... -- (188) -- (188) -- (188)
Miscellaneous--net..... (12,954) (16,812) (79,593) (30,447) (82,961) (39,688)
---------- ---------- ---------- ---------- ----------- ----------
$ (175,333) $ (174,573) $ (560,584) $ (514,305) $ (372,905) $ (682,117)
---------- ---------- ---------- ---------- ----------- ----------
Net Income (Loss)....... $ 263,661 $ 407,433 $ 276,342 $ 604,900 $ (66,454) $ 683,491
========== ========== ========== ========== =========== ==========
Average Number of Common
Shares Outstanding..... 214,138 214,769 213,947 214,625 213,880 214,539
Earnings (Loss) per
Common Share........... $1.23 $1.90 $1.29 $2.82 $(0.31) $3.19
Cash Dividends Declared
per Common Share....... $0.40 $0.40 $1.20 $1.20 $ 1.60 $1.60
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
5
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER
DECEMBER 31, 30,
ASSETS 1994 1995
------ ------------ -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Utility Plant:
Plant and equipment, at original cost (includes
construction work in progress of $1,043 million
and $1,029 million, respectively)................. $26,257,665 $26,759,559
Less--Accumulated provision for depreciation....... 9,623,756 10,358,526
----------- -----------
$16,633,909 $16,401,033
Nuclear fuel, at amortized cost.................... 689,424 662,069
----------- -----------
$17,323,333 $17,063,102
----------- -----------
Investments and Other Property:
Nuclear decommissioning funds...................... $ 880,944 $ 1,145,850
Subsidiary companies............................... 118,051 113,142
Other, at cost..................................... 41,292 78,872
----------- -----------
$ 1,040,287 $ 1,337,864
----------- -----------
Current Assets:
Cash............................................... $ 1,927 $ 3,361
Temporary cash investments......................... 75,008 602,373
Other cash investments............................. 19,588 1,978
Special deposits................................... 29,603 897
Receivables--
Customers........................................ 463,241 659,239
Taxes............................................ 36,228 398
Other............................................ 67,389 49,685
Provisions for uncollectible accounts............ (10,720) (11,404)
Coal and fuel oil, at average cost................. 108,872 101,567
Materials and supplies, at average cost............ 384,612 362,626
Deferred unrecovered energy costs.................. 48,697 51,486
Deferred income taxes related to current assets and
liabilities--
Loss carryforward................................ 10,090 --
Other............................................ 110,267 121,639
Prepayments and other.............................. 57,050 32,806
----------- -----------
$ 1,401,852 $ 1,976,651
----------- -----------
Deferred Charges and Other Noncurrent Assets:
Regulatory assets.................................. $ 2,604,270 $ 2,497,400
Unrecovered energy costs........................... 643,438 604,415
Other.............................................. 108,308 66,248
----------- -----------
$ 3,356,016 $ 3,168,063
----------- -----------
$23,121,488 $23,545,680
=========== ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
6
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER
DECEMBER 31, 30,
CAPITALIZATION AND LIABILITIES 1994 1995
------------------------------ ------------ -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Capitalization (see accompanying statements):
Common stock equity................................. $ 5,448,127 $ 5,803,232
Preferred and preference stocks of ComEd--
Without mandatory redemption requirements......... 508,147 508,058
Subject to mandatory redemption requirements...... 292,163 265,047
ComEd-obligated mandatorily redeemable preferred
securities of ComEd Financing I*................... -- 200,000
Long-term debt...................................... 7,453,206 6,618,332
----------- -----------
$13,701,643 $13,394,669
----------- -----------
Current Liabilities:
Notes payable--bank loans........................... $ 7,150 $ 7,150
Current portion of long-term debt, redeemable pref-
erence stock and capitalized lease obligations of
subsidiary companies............................... 560,545 993,321
Accounts payable.................................... 350,958 319,148
Accrued interest.................................... 182,745 160,561
Accrued taxes....................................... 206,973 374,492
Dividends payable................................... 102,647 102,506
Customer deposits................................... 44,514 44,665
Other............................................... 85,845 103,434
----------- -----------
$ 1,541,377 $ 2,105,277
----------- -----------
Deferred Credits and Other Noncurrent Liabilities:
Deferred income taxes............................... $ 4,383,347 $ 4,492,415
Accumulated deferred investment tax credits......... 717,752 696,216
Accrued spent nuclear fuel disposal fee and related
interest........................................... 589,757 615,721
Obligations under capital leases of subsidiary
companies.......................................... 433,184 407,614
Regulatory liabilities.............................. 699,426 606,299
Other............................................... 1,055,002 1,227,469
----------- -----------
$ 7,878,468 $ 8,045,734
----------- -----------
Commitments and Contingent Liabilities (Note 20)
$23,121,488 $23,545,680
=========== ===========
</TABLE>
*As described in Note 8 of Notes to Financial Statements, the sole asset of
ComEd Financing I is $206.2 million principal amount of 8.48% subordinated
deferrable interest notes due September 30, 2035 of ComEd.
The accompanying Notes to Financial Statements are an integral part of the
above statements.
7
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED CAPITALIZATION
<TABLE>
<CAPTION>
SEPTEMBER
DECEMBER 31, 30,
1994 1995
------------ ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Common Stock Equity:
Common stock, without par value--
Outstanding--214,340,067 shares and 214,788,673
shares, respectively............................ $ 4,890,931 $ 4,901,661
Preference stock expense of ComEd................. (3,775) (3,712)
Retained earnings................................. 560,971 905,283
----------- -----------
$ 5,448,127 $ 5,803,232
----------- -----------
Preferred and Preference Stocks of ComEd--
Without Mandatory Redemption Requirements:
Preference stock, cumulative, without par
value--
Outstanding--13,499,549 shares................. $ 504,957 $ 504,957
$1.425 convertible preferred stock, cumulative,
without par value--
Outstanding--100,323 shares and 97,499 shares,
respectively.................................. 3,190 3,101
Prior preferred stock, cumulative, $100 par
value per share--
No shares outstanding.......................... -- --
----------- -----------
$ 508,147 $ 508,058
----------- -----------
Subject to Mandatory Redemption Requirements:
Preference stock, cumulative, without par
value--
Outstanding--3,113,205 shares and 2,970,705
shares, respectively.......................... $ 309,964 $ 295,734
Current redemption requirements for preference
stock included in current liabilities.......... (17,801) (30,687)
----------- -----------
$ 292,163 $ 265,047
----------- -----------
ComEd-Obligated Mandatorily Redeemable Preferred
Securities of ComEd Financing I:
Outstanding--None and 8,000,000, respectively... $ -- $ 200,000
----------- -----------
Long-Term Debt:
First mortgage bonds:
Maturing 1995 through 1999--5 1/4% to 7%........ $ 818,000 $ 715,000
Maturing 2000 through 2009--5.30% to 9 3/8%..... 2,220,500 2,220,400
Maturing 2010 through 2019--5.85% to 9 5/8%..... 1,106,000 1,106,000
Maturing 2020 through 2023--7 3/4% to 9 7/8%.... 1,870,000 1,870,000
----------- -----------
$ 6,014,500 $ 5,911,400
Sinking fund debentures, due 1999 through 2011--
2 3/4% to 7 5/8%................................. 112,593 110,527
Pollution control obligations, due 2004 through
2014--4.20% to 9 1/8%............................ 337,200 337,200
Other long-term debt.............................. 1,451,449 1,099,409
Current maturities of long-term debt included in
current liabilities.............................. (395,554) (777,238)
Unamortized net debt discount and premium......... (66,982) (62,966)
----------- -----------
$ 7,453,206 $ 6,618,332
----------- -----------
$13,701,643 $13,394,669
=========== ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
8
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED RETAINED EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED TWELVE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30
------------------- ------------------- --------------------
1994 1995 1994 1995 1994 1995
--------- --------- -------- ---------- -------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Balance at Beginning of
Period................. $ 390,691 $ 586,714 $549,152 $ 560,971 $977,682 $ 568,110
Add--Net income (loss).. 263,661 407,433 276,342 604,900 (66,454) 683,491
--------- --------- -------- ---------- -------- ----------
$ 654,352 $ 994,147 $825,494 $1,165,871 $911,228 $1,251,601
--------- --------- -------- ---------- -------- ----------
Deduct--
Cash dividends de-
clared on common
stock............... $ 85,675 $ 85,919 $256,822 $ 257,636 $342,322 $ 343,374
Other capital stock
transactions--net... 567 2,945 562 2,952 796 2,944
--------- --------- -------- ---------- -------- ----------
$ 86,242 $ 88,864 $257,384 $ 260,588 $343,118 $ 346,318
--------- --------- -------- ---------- -------- ----------
Balance at End of Peri-
od..................... $ 568,110 $ 905,283 $568,110 $ 905,283 $568,110 $ 905,283
========= ========= ======== ========== ======== ==========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
9
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED TWELVE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30
-------------------- ---------------------- ------------------------
1994 1995 1994 1995 1994 1995
--------- --------- ---------- ---------- ----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Cash Flow from Operating
Activities:
Net income (loss)...... $ 263,661 $ 407,433 $ 276,342 $ 604,900 $ (66,454) $ 683,491
Adjustments to
reconcile net income
(loss) to net cash
provided by operating
activities:
Depreciation and
amortization........ 234,128 237,393 697,809 714,276 927,380 945,833
Deferred income taxes
and investment tax
credits--net........ 109,556 90,540 72,662 124,835 143,445 178,454
Equity component of
allowance for funds
used during
construction........ (5,215) (2,834) (17,641) (8,703) (24,189) (13,690)
Provisions for
revenue refunds and
related interest.... 5,988 -- 34,978 (231) 1,138,295 2,339
Revenue refunds and
related interest.... (409,541) -- (1,083,109) 15,135 (1,270,214) (123,407)
Recovery/(deferral)
of regulatory
assets/deferred
carrying charges--
net................. 3,818 3,818 11,635 11,454 (423,609) 15,272
Provisions/(payments)
for liability for
early retirement and
separation costs--
net................. 1,425 1,980 32,962 2,540 33,143 3,158
Net effect on cash
flows of changes in:
Receivables........ (43,840) (132,854) 141,749 (141,780) 163,924 (169,314)
Coal and fuel oil.. 26,236 31,731 6,961 7,305 55,093 3,224
Materials and
supplies.......... 8,618 3,904 8,794 21,986 15,199 31,294
Accounts payable
adjusted for
nuclear fuel lease
principal payments
and early
retirement and
separation costs--
net............... 19,996 70,109 35,196 148,314 247,972 229,683
Accrued interest
and taxes......... (68,963) 56,080 (27,119) 145,335 (117,528) 242,985
Other changes in
certain current
assets and
liabilities....... (15,756) 35,663 (50,531) 45,551 (50,293) 41,428
Other--net........... 61,238 46,986 198,409 176,876 163,915 111,798
--------- --------- ---------- ---------- ----------- -----------
$ 191,349 $ 849,949 $ 339,097 $1,867,793 $ 936,079 $ 2,182,548
--------- --------- ---------- ---------- ----------- -----------
Cash Flow from Investing
Activities:
Construction
expenditures.......... $(179,348) $(197,437) $ (562,934) $ (589,570) $ (824,425) $ (766,315)
Nuclear fuel
expenditures.......... (65,696) (52,842) (170,995) (163,996) (241,389) (250,266)
Equity component of
allowance for funds
used during
construction.......... 5,215 2,834 17,641 8,703 24,189 13,690
Contributions to
nuclear
decommissioning
funds................. -- -- (96,229) (96,229) (132,550) (132,550)
Investment in
subsidiary companies.. -- -- -- (1) -- (50)
Other cash investments
and special deposits.. 7,855 7,689 628,387 7,110 38,971 710
--------- --------- ---------- ---------- ----------- -----------
$(231,974) $(239,756) $ (184,130) $ (833,983) $(1,135,204) $(1,134,781)
--------- --------- ---------- ---------- ----------- -----------
Cash Flow from Financing
Activities:
Issuance of
securities--
Long-term debt........ $ 87,699 $ 10,000 $ 364,813 $ 35,000 $ 597,485 $ 216,475
Preferred securities
of ComEd Financing I. -- 200,000 -- 200,000 -- 200,000
Capital stock......... 72,703 913 77,734 10,658 82,431 13,961
Retirement and
redemption of
securities--
Long-term debt........ (145,850) (200,498) (501,602) (492,161) (512,764) (694,489)
Capital stock......... (11,250) (11,250) (14,137) (14,250) (46,281) (17,822)
Deposits and
securities held for
retirement and
redemption of
securities............ (2) 377 3,192 106 35,546 104
Premium paid on early
redemption of long-
term debt............. -- -- (900) -- (900) (3,664)
Cash dividends paid on
common stock.......... (85,629) (85,906) (256,647) (257,456) (342,076) (343,131)
Proceeds from
sale/leaseback of
nuclear fuel.......... 39,443 77,876 207,463 193,216 248,994 292,401
Nuclear fuel lease
principal payments.... (53,510) (64,507) (153,046) (180,124) (209,653) (236,767)
Increase (Decrease) in
short-term
borrowings............ 1,050 (40,000) 1,200 -- 1,200 --
--------- --------- ---------- ---------- ----------- -----------
$ (95,346) $(112,995) $ (271,930) $ (505,011) $ (146,018) $ (572,932)
--------- --------- ---------- ---------- ----------- -----------
Increase (Decrease) in
Cash and Temporary Cash
Investments............ $(135,971) $ 497,198 $ (116,963) $ 528,799 $ (345,143) $ 474,835
Cash and Temporary Cash
Investments at
Beginning of Period.... 266,870 108,536 247,862 76,935 476,042 130,899
--------- --------- ---------- ---------- ----------- -----------
Cash and Temporary Cash
Investments at End of
Period................. $ 130,899 $ 605,734 $ 130,899 $ 605,734 $ 130,899 $ 605,734
========= ========= ========== ========== =========== ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
10
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
Corporate Structure and Basis of Presentation. Unicom was incorporated in
January 1994, and became the parent corporation of ComEd and Unicom Enterprises
in a corporate restructuring that became effective on September 1, 1994.
Previously, Unicom Enterprises was a wholly-owned subsidiary of ComEd. The
restructuring was accounted for by the pooling-of-interests method. Under this
method, the assets, liabilities and ownership interests of each of the
companies are combined at their existing recorded amounts as of the
restructuring date, and the financial statements are presented herein as if the
restructuring took place as of the earliest period shown. In the restructuring,
each of the 214,185,572 outstanding shares of ComEd common stock, par value
$12.50 per share, was converted into one fully paid and non-assessable share of
Unicom common stock, without par value. The preferred and preference stocks,
common stock purchase warrants, first mortgage bonds and other debt obligations
of ComEd and the Indiana Company were unchanged in the restructuring and remain
their outstanding securities and obligations.
ComEd, an electric utility, is the principal subsidiary of Unicom. Unicom
Enterprises is an unregulated subsidiary of Unicom and is engaged, through its
subsidiary, Unicom Thermal, in energy service activities. Unicom also has
several other subsidiaries that have been formed to engage in unregulated
activities.
The consolidated financial statements include the accounts of Unicom, ComEd,
the Indiana Company, ComEd Financing I and Unicom's unregulated subsidiaries.
All significant intercompany transactions have been eliminated. ComEd's
investments in other subsidiary companies, which are not material in relation
to ComEd's financial position or results of operations, are accounted for in
accordance with the equity method of accounting.
Regulation. ComEd is subject to regulation as to accounting and ratemaking
policies and practices by the ICC and FERC. ComEd'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 in accordance with SFAS No. 71, Accounting
for the Effects of Certain Types of Regulation. 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.
Regulatory Assets and Liabilities. Regulatory assets are incurred costs which
have been deferred and are amortized for ratemaking and accounting purposes.
Regulatory liabilities represent amounts to be settled with customers through
future rates. Regulatory assets and liabilities reflected on the Consolidated
Balance Sheets at December 31, 1994 and September 30, 1995 were as follows:
11
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1994 1995
------------ -------------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Regulatory assets:
Deferred income taxes (1).................... $1,791,395 $1,708,485
Deferred carrying charges (2)................ 422,966 413,183
Nuclear decommissioning
costs--Dresden Unit 1 (3)................... 141,405 141,197
Unamortized loss on reacquired debt (4)...... 176,128 164,591
Other........................................ 72,376 69,944
---------- ----------
$2,604,270 $2,497,400
========== ==========
Regulatory liabilities:
Deferred income taxes (1).................... $ 650,813 $ 606,299
Other........................................ 48,613 --
---------- ----------
$ 699,426 $ 606,299
========== ==========
</TABLE>
- --------
(1) Recorded in compliance with SFAS No. 109. See Note 15 for additional
information.
(2) Amortized over the remaining life of the Units.
(3) Amortized over the remaining life of Dresden station. See "Depreciation
and Decommissioning" below for additional information.
(4) Amortized over the lives of the long-term debt issued to finance the
reacquisition. See "Loss on Reacquired Debt" below for additional
information.
For additional information related 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." See also "Deferred Unrecovered Energy Costs" below regarding the
fuel adjustment clause, the DOE assessment and coal reserves.
If a portion of ComEd's operations was no longer subject to the provisions
of SFAS No. 71 as a result of a change in regulation or the effects of
competition, ComEd would be required to write off the related regulatory
assets and liabilities. In addition, ComEd would be required to determine any
impairment to other assets and write down such assets to their fair value.
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of, which was issued in March 1995 and will
be effective on January 1, 1996, establishes accounting standards for the
impairment of long-lived assets. The SFAS also requires that regulatory assets
which are no longer probable of recovery through future revenue be charged to
earnings. SFAS No. 121 is not expected to have an impact on ComEd's financial
position or results of operations upon adoption.
Customer Receivables and Revenues. ComEd is engaged principally in the
production, purchase, transmission, distribution and sale of electricity to a
diverse base of residential, commercial and industrial customers. ComEd's
electric service territory has an area of approximately 11,540 square miles
and an estimated population of approximately 8.2 million, 8.1 million and 8.2
million as of December 31, 1994, 1993 and 1992, respectively. It includes the
city of Chicago, an area of about 225 square miles with an estimated
population of three million from which ComEd derived approximately one-third
of its ultimate consumer revenues in the twelve months ended September 30,
1995. ComEd had approximately 3.4 million electric customers at September 30,
1995.
Depreciation and Decommissioning. ComEd's depreciation is provided on the
straight-line basis by amortizing the cost of depreciable plant and equipment
over estimated composite service lives. Non-nuclear plant and equipment is
depreciated at annual rates developed for each class of plant based on their
composite service lives. Provisions for depreciation were at average annual
rates of 3.13% and
12
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
3.14% for the three months ended September 30, 1994 and 1995, respectively,
3.13% and 3.14% for the nine months ended September 30, 1994 and 1995,
respectively, and 3.13% for the twelve months ended September 30, 1994 and
1995, of average depreciable utility plant and equipment. The annual rate for
nuclear plant and equipment is 2.88%, which excludes separately collected
decommissioning costs.
Nuclear plant decommissioning costs are accrued over the expected service
lives of the related nuclear generating units. 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 funds. 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 SEC and a FASB review
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 NRC
guidelines. ComEd's twelve operating units have estimated remaining service
lives ranging from 11 to 33 years. ComEd's first nuclear unit, Dresden Unit 1,
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.
Based on ComEd's most recent study, decommissioning costs, including the cost
of decontamination and dismantling, are estimated to aggregate $3.5 billion in
current-year (1995) dollars after excluding a contingency allowance. ComEd
estimates that it will expend approximately $15 billion, excluding any
contingency allowance, for decommissioning costs primarily during the period
from 2007 through 2032. Such costs are expected to be funded by external
decommissioning trusts which ComEd established in compliance with Illinois law
and into which ComEd has been making annual contributions. Future
decommissioning cost estimates may be significantly affected by the adoption of
or changes to NRC regulations.
On January 9, 1995, the ICC issued the Rate Order in the proceedings relating
to ComEd's February 1994 rate increase request. In the Rate Order, the ICC
determined that ComEd's annual nuclear plant decommissioning cost collections
from its ratepayers should be reduced from the $127 million previously
authorized in the 1991 ICC rate order to $112.7 million. The $112.7 million
annual collection amount primarily resulted from the ICC's decision to exclude
from ComEd's costs subject to collection a contingency allowance. Contingency
allowances used in decommissioning cost estimates provide for currently
unspecifiable costs that are likely to occur after decommissioning begins and
generally range from 20% to 25% of the currently specifiable costs. However,
the Rate Order established a rider which will allow annual adjustments to
decommissioning cost collections outside of the context of a traditional rate
proceeding. Such rider is intended to allow adjustments in decommissioning cost
recoveries from ratepayers as changes in cost estimates occur. On February 28,
1995, ComEd submitted its initial rider filing to the ICC to increase its
annual collections to $113.5 million, primarily reflecting additional
expenditures at Dresden Unit 1, its retired nuclear unit. The ICC approved the
rider filing on April 19, 1995.
As a result of the decommissioning rider filing, beginning May 2, 1995, the
effective date of the order related to the rider filing, ComEd began collecting
and accruing $113.5 million annually for decommissioning costs. The assumptions
used to calculate the $113.5 million decommissioning cost accrual include: the
decommissioning cost estimate of $3.5 billion in current-year (1995) dollars,
after-tax earnings on the tax-qualified and nontax-qualified decommissioning
funds of 7.30% and 6.26%, respectively, as well as an escalation rate for
future decommissioning costs of 5.3%. The annual accrual
13
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
of $113.5 million provided over the lives of the nuclear plants, coupled with
the expected fund earnings and amounts previously recovered in rates, is
expected to aggregate approximately $15 billion.
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 September 30, 1995, the total decommissioning costs
included in the accumulated provision for depreciation were approximately
$1,223 million. For ComEd's retired nuclear unit, Dresden Unit 1, the total
estimated liability at September 30, 1995 in current-year (1995) dollars of
$254 million was recorded on the Consolidated Balance Sheets as a noncurrent
liability and the unrecovered portion of the liability of approximately $141
million was recorded as a regulatory asset.
Under Illinois law, decommissioning cost collections are required to be
deposited into external trusts; and, consequently, such collections do not add
to the cash flows available for general corporate purposes. The ICC has
approved ComEd's funding plan which provides for annual contributions of
current accruals and ratable contributions of past accruals over the remaining
service lives of the nuclear plants. At September 30, 1995, the past accruals
that are required to be contributed to the external trusts aggregate $190
million. The fair value of funds accumulated in the external trusts at
September 30, 1995 was approximately $1,146 million which includes pre-tax
unrealized appreciation of $127 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 on the Statements of
Consolidated Income as they are realized, were $8,495,000 and $19,408,000 for
the three months ended September 30, 1994 and 1995, respectively, $28,825,000
and $45,881,000 for the nine months ended September 30, 1994 and 1995,
respectively, and $37,796,000 and $54,575,000 for the twelve months ended
September 30, 1994 and 1995, respectively.
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 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 11 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, were
$101,534,000 and $105,378,000 for the three months ended September 30, 1994 and
1995, respectively, $267,693,000 and $301,917,000 for the nine months ended
September 30, 1994 and 1995, respectively, and $354,834,000 and $392,251,000
for the twelve months ended September 30, 1994 and 1995, 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.
AFUDC. In accordance with the uniform systems of accounts prescribed by
regulatory authorities, ComEd 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
14
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
basis and the borrowed funds component of AFUDC is recorded on a pre-tax basis.
The average annual capitalization rates were 9.84% and 9.26% for the three
months ended September 30, 1994 and 1995, respectively, 9.84% and 9.49% for the
nine months ended September 30, 1994 and 1995, respectively, and 9.86% and
9.58% for the twelve months ended September 30, 1994 and 1995, respectively.
AFUDC does not contribute to the current cash flow of Unicom or ComEd.
Interest. Total interest costs incurred on debt, leases and other obligations
were $179,138,000 and $178,657,000 for the three months ended September 30,
1994 and 1995, respectively, $552,816,000 and $532,386,000 for the nine months
ended September 30, 1994 and 1995, respectively, and $791,942,000 and
$709,308,000 for the twelve months ended September 30, 1994 and 1995,
respectively.
Debt Discount, Premium and Expense. Discount, premium and expense on long-
term debt of subsidiary companies are being amortized over the lives of the
respective issues.
Loss on Reacquired Debt. Consistent with regulatory treatment, the net loss
from ComEd's 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.
Deferred Unrecovered Energy Costs. The 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 ComEd's base rates. As authorized by the
ICC, ComEd 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 uranium enrichment
facilities owned and previously operated by the DOE. As of December 31, 1994
and September 30, 1995, an asset related to the assessments of approximately
$191 million and $178 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, 1994 and September 30, 1995, a
corresponding liability of approximately $165 million and $163 million,
respectively, was recorded in other noncurrent liabilities and approximately
$15 million was recorded in other current liabilities.
At December 31, 1994 and September 30, 1995, ComEd had unrecovered fuel costs
in the form of coal reserves of approximately $498 million and $465 million,
respectively. In prior years, ComEd's commitments for the purchase of coal
exceeded its requirements. Rather than take all the coal it was required to
take, ComEd agreed to purchase the coal in place in the form of coal reserves.
ComEd 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. ComEd expects to recover the costs of the coal
reserves by the year 2007. However, ComEd 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 $31 million and $24 million at December 31, 1994 and September
30, 1995, respectively, have been included on the Consolidated Balance Sheets
in current assets as deferred unrecovered energy costs. See Note 20 for
additional information concerning ComEd's coal commitments.
Certain Investments. Effective January 1, 1994, SFAS No. 115, Accounting for
Certain Investments in Debt and Equity Securities, was adopted. SFAS No. 115
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 12.
15
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
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 within three months at the time of purchase, are considered to be cash
equivalents. Supplemental cash flow information for the three months, nine
months and twelve months ended September 30, 1994 and 1995 was as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED TWELVE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30
------------------- ------------------- ---------------------
1994 1995 1994 1995 1994 1995
--------- --------- --------- --------- ---------- ----------
(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). $ 174,323 $ 152,891 $ 494,358 $ 469,363 $ 631,814 $ 620,662
Income taxes (net of
refunds)............ $ 92,467 $ 87,450 $ 14,876 $ 109,982 $ 10,628 $ 90,184
Supplemental Schedule of
Non-Cash Investing and
Financing Activities:
Capital lease obliga-
tions incurred by
subsidiary companies.. $ 40,089 $ 78,772 $ 209,958 $ 197,015 $ 254,123 $ 296,773
</TABLE>
(2) SETTLEMENTS RELATING TO CERTAIN RATE MATTERS. Under the Rate Matters
Settlement, effective as of November 4, 1993, ComEd reduced its rates by
approximately $339 million annually and refunded approximately $1.26 billion
(including revenue taxes), plus interest at five percent on the unpaid balance,
through temporarily reduced rates over a refund period which ended in November
1994 (followed by a reconciliation period of five months). ComEd had previously
deferred the recognition of revenues during 1993 as a result of developments in
the proceedings related to the 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 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 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.
Under the Fuel Matters Settlement, effective as of December 2, 1993, ComEd
paid approximately $108 million (including revenue taxes) to its customers
through temporarily reduced collections under its fuel adjustment clause over a
twelve-month period which ended in November 1994. The recording of the effects
of the Fuel Matters Settlement in October 1993 reduced 1993 net income by
approximately $62 million or $0.29 per common share.
(3) OTHER RATE MATTERS. On January 9, 1995, the ICC issued the Rate Order in
the proceedings relating to ComEd's February 1994 rate increase request. The
Rate Order provides, among other things, for (i) an increase in ComEd's total
revenues of approximately $301.8 million (excluding add-on revenue taxes) or
5.2%, on an annual basis, including a $303.2 million increase in base rates,
(ii) the collection of municipal franchise costs as an adder to base rates
until May 1, 1995, when ComEd began collecting such costs prospectively on an
individual municipality basis through a rider, and (iii) the use of a rider,
with annual review proceedings, to pass on to ratepayers increases or decreases
in estimated costs associated with the decommissioning of ComEd's nuclear
generating units. See "Depreciation and Decommissioning" in Note 1 for
information related to the level of decommissioning cost collections allowed in
the Rate Order. The ICC also determined that the Units were 100% "used and
useful" and
16
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
that the previously determined reasonable costs of such Units, as depreciated,
should be included in full in ComEd's rate base. The rates provided in the Rate
Order became effective on January 14, 1995; however, they are being collected
subject to refund as a result of subsequent judicial action. As of September
30, 1995, electric operating revenues of approximately $232 million (excluding
revenue taxes) are subject to refund. Intervenors and ComEd have filed appeals
of the Rate Order with the Illinois Appellate Court.
(4) AUTHORIZED SHARES AND VOTING RIGHTS OF CAPITAL STOCK. At September 30,
1995, Unicom's authorized shares consisted of 400,000,000 shares of common
stock. The authorized shares of ComEd preferred and preference stocks at
September 30, 1995 were: preference stock--23,280,705 shares; $1.425
convertible preferred stock--97,499 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
outstanding Unicom shares are entitled to one vote for each share held on each
matter submitted to a vote of such shareholders; and holders of outstanding
ComEd shares are entitled to one vote for each share held on each matter
submitted to a vote of such shareholders. All such shares have the right to
cumulate votes in elections for the directors of the corporation which issued
the shares.
(5) COMMON STOCK. At September 30, 1995, shares of Unicom common stock were
reserved for the following purposes:
<TABLE>
<S> <C>
Long-Term Incentive Plan........................................ 3,816,918
Employee Stock Purchase Plan.................................... 993,339
Employee Savings and Investment Plan............................ 338,703
---------
5,148,960
=========
</TABLE>
Common stock for the three months, nine months and twelve months ended
September 30, 1994 and 1995 was issued as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED TWELVE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30
------------------ ----------------- -------------------
1994 1995 1994 1995 1994 1995
--------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Shares of Common Stock
Issued:
Long-Term Incentive
Plan.................. -- 200 -- 183,082 -- 183,082
Employee Stock Purchase
Plan.................. -- -- 154,710 123,824 284,656 274,319
Employee Savings and
Investment Plan....... 15,800 31,700 81,400 141,700 122,400 145,700
Conversion of $1.425
convertible preferred
stock................. 91,935 -- 185,041 -- 191,048 --
Conversion of warrants. 7,522 -- 13,274 -- 13,705 --
--------- -------- -------- -------- --------- ---------
115,257 31,900 434,425 448,606 611,809 603,101
========= ======== ======== ======== ========= =========
<CAPTION>
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Amount of Common Stock
Issued................. $ 3,534 $ 913 $ 11,714 $ 10,658 $ 16,613 $ 13,726
========= ======== ======== ======== ========= =========
</TABLE>
At December 31, 1994 and September 30, 1995, 83,751 and 82,932 ComEd common
stock purchase warrants, respectively, were outstanding. The warrants entitle
the holders to convert such warrants into common stock of ComEd at a conversion
rate of one share of common stock for three warrants.
(6) COMED PREFERRED AND PREFERENCE STOCKS WITHOUT MANDATORY REDEMPTION
REQUIREMENTS. During the twelve months ended September 30, 1994, 3,000,000
shares of ComEd preference stock without mandatory redemption requirements were
issued and no shares of ComEd preferred or preference stocks without mandatory
redemption requirements were redeemed. No shares of ComEd preferred or
preference stocks without mandatory redemption requirements were issued or
redeemed during the twelve months ended September 30, 1995. The series of ComEd
preference stock without mandatory redemption requirements outstanding at
September 30, 1995 are summarized as follows:
17
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
<TABLE>
<CAPTION>
INVOLUNTARY
SHARES AGGREGATE REDEMPTION LIQUIDATION
SERIES OUTSTANDING STATED VALUE PRICE(1) PRICE(1)
------ ----------- ------------ ---------- -----------
(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
$2.425 3,000,000 72,637 $ 25.00 $25.00
---------- --------
13,499,549 $504,957
========== ========
</TABLE>
--------
(1) Per share plus accrued and unpaid dividends, if any.
The outstanding shares of ComEd's $1.425 convertible preferred stock are
convertible at the option of the holders thereof, at any time, into common
stock of ComEd 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 ComEd 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.
(7) COMED PREFERENCE STOCK SUBJECT TO MANDATORY REDEMPTION REQUIREMENTS.
During the twelve months ended September 30, 1994 and 1995, no shares of ComEd
preference stock subject to mandatory redemption requirements were issued. The
series of ComEd preference stock subject to mandatory redemption requirements
outstanding at September 30, 1995 are summarized as follows:
<TABLE>
<CAPTION>
SHARES AGGREGATE
SERIES OUTSTANDING STATED VALUE OPTIONAL REDEMPTION PRICE(1)
- -------------- ----------- ------------ --------------------------------------------------
(THOUSANDS
OF DOLLARS)
<S> <C> <C> <C>
$8.20 285,705 $ 28,571 $103 through October 31, 1997; and $101 thereafter
$8.40 Series B 360,000 35,757 $101
$8.85 300,000 30,000 $103 through July 31, 1998; and $101 thereafter
$9.25 675,000 67,500 $103 through July 31, 1999; and $101 thereafter
$9.00 650,000 64,431 Non-callable
$6.875 700,000 69,475 Non-callable
--------- --------
2,970,705 $295,734
========= ========
</TABLE>
- --------
(1) 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 ComEd preference
stock subject to mandatory redemption requirements are summarized as follows:
<TABLE>
<CAPTION>
SINKING
FUND INVOLUNTARY
SERIES ANNUAL SINKING FUND REQUIREMENT PRICE(1) LIQUIDATION PRICE(1)
- ------------ ----------------------------------- ------- -------------------
<S> <C> <C> <C>
$8.20 35,715 shares $100 $100.00
$8.40 Series
B 30,000 shares(2) $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(2) $100 $ 99.125
$6.875 (3) $100 $ 99.25
</TABLE>
- --------
(1) Per share plus accrued and unpaid dividends, if any.
(2) ComEd 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.
(3) All shares are required to be redeemed on May 1, 2000.
18
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
Annual remaining sinking fund requirements through 1999 on ComEd preference
stock outstanding at September 30, 1995 will aggregate $3,572,000 in 1995,
$30,822,000 in 1996, $30,822,000 in 1997, $30,822,000 in 1998 and $30,822,000
in 1999. During the twelve months ended September 30, 1994 and 1995, 462,085
shares and 178,215 shares, respectively, of ComEd 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, 1993, ComEd 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, ComEd 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) COMED-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF COMED
FINANCING I. In September 1995, ComEd Financing I (Trust) issued 8,000,000 of
its 8.48% ComEd-obligated mandatorily redeemable preferred securities. The sole
asset of the Trust is $206.2 million principal amount of 8.48% subordinated
deferrable interest notes due September 30, 2035 of ComEd. There is a full and
unconditional guarantee by ComEd of the Trust's obligations under the
securities issued by the Trust. However, ComEd's obligations are subordinate
and junior in right of payment to certain other indebtedness of ComEd. ComEd
has the right to defer payments of interest on the subordinated deferrable
interest notes by extending the interest payment period, at any time, for up to
20 consecutive quarters. If interest payments on the subordinated deferrable
interest notes are so deferred, distributions on the preferred securities will
also be deferred. During any deferral, distributions will continue to accrue
with interest thereon. In addition, during any such deferral, ComEd may not
declare or pay any dividend or other distribution on, or redeem or purchase,
any of its capital stock.
The subordinated deferrable interest notes are redeemable by ComEd (in whole
or in part) from time to time, on or after September 30, 2000, or at any time
in the event of certain income tax circumstances. If the subordinated
deferrable interest notes are redeemed, the Trust must redeem preferred
securities having an aggregate liquidation amount equal to the aggregate
principal amount of the subordinated deferrable interest notes so redeemed. In
the event of the dissolution, winding up or termination of the Trust, the
holders of the preferred securities will be entitled to receive, for each
preferred security, a liquidation amount of $25 plus accrued and unpaid
distributions thereon (including interest thereon) to the date of payment,
unless in connection with the dissolution, the subordinated deferrable interest
notes are distributed to the holders of the preferred securities.
19
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(9) LONG-TERM DEBT. Sinking fund requirements and scheduled maturities
remaining through 1999 for ComEd and the Indiana Company's first mortgage
bonds, sinking fund debentures and other long-term debt outstanding at
September 30, 1995, after deducting sinking fund debentures reacquired for
satisfaction of future sinking fund requirements, are summarized as follows:
1995--$648,618,000; 1996--$231,384,000; 1997--$689,172,000; 1998--$350,017,000;
and 1999--$152,445,000. Scheduled payments through 1999 for Unicom's loan
payable are as follows: 1996--$848,000; 1997--$1,174,000; 1998--$1,203,000; and
1999--$1,256,000. Unicom Enterprises' note payable to bank of $25,000,000 will
mature in 1997.
At September 30, 1995, ComEd's outstanding first mortgage bonds maturing
through 1999 were as follows:
<TABLE>
<CAPTION>
SERIES PRINCIPAL AMOUNT
------ ----------------------
(THOUSANDS OF DOLLARS)
<S> <C>
5 1/4% due April 1, 1996...................... $ 50,000
5 3/4% due November 1, 1996................... 50,000
5 3/4% due December 1, 1996................... 50,000
7% due February 1, 1997....................... 150,000
5 3/8% due April 1, 1997...................... 50,000
6 1/4% due October 1, 1997.................... 60,000
6 1/4% due February 1, 1998................... 50,000
6% due March 15, 1998......................... 130,000
6 3/4% due July 1, 1998....................... 50,000
6 3/8% due October 1, 1998.................... 75,000
--------
$715,000
========
</TABLE>
Other long-term debt outstanding at September 30, 1995 is summarized as
follows:
<TABLE>
<CAPTION>
PRINCIPAL
DEBT SECURITY AMOUNT INTEREST RATE
- --------------------------------- ---------- --------------------------------------------------------
(THOUSANDS
OF
DOLLARS)
<S> <C> <C>
Unicom--
Loan payable due January 1, 2003 $ 10,000 Interest rate of 8.31%
----------
ComEd--
Notes:
Medium Term Notes, Series 1N
due various dates through
April 1, 1998 $ 50,500 Interest rates ranging from 9.40% to 9.65%
Medium Term Note, Series 2N due
July 1, 1996 10,000 Interest rate of 9.85%
Medium Term Notes, Series 3N
due various dates through
October 15, 2004 322,250 Interest rates ranging from 8.92% to 9.20%
Medium Term Notes, Series 4N
due various dates through
May 15, 1997 46,000 Interest rates ranging from 8.11% to 8.875%
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%
----------
$ 913,750
----------
Long-Term Note Payable to Bank:
Note due June 1, 1997 $ 150,000 Prevailing interest rate of 6.375% at September 30, 1995
----------
Purchase Contract Obligations:
Woodstock due January 2, 1997 $ 186 Fixed interest rate of 4.50%
Hinsdale due April 30, 2005 473 Fixed interest rate of 3.00%
----------
$ 659
----------
Total ComEd $1,064,409
----------
Unicom Enterprises--
Note Payable to Bank:
Note due November 22, 1997 $ 25,000 Prevailing interest rate of 6.768% at September 30, 1995
----------
Total Unicom $1,099,409
==========
</TABLE>
Long-term debt maturing or being redeemed within one year has been included
in current liabilities. See Note 21 for additional information regarding the
early redemption of certain long-term debt.
ComEd's outstanding first mortgage bonds are secured by a lien on
substantially all property and franchises, other than expressly excepted
property, owned by ComEd.
20
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(10) LINES OF CREDIT. ComEd had total bank lines of credit of approximately
$922 million and unused bank lines of credit of approximately $915 million at
September 30, 1995. Of that amount, $915 million (of which $175 million expires
on September 30, 1996, $72 million expires in equal quarterly installments
commencing on December 31, 1996 and ending on September 30, 1998 and $668
million expires in equal quarterly installments commencing on December 31, 1997
and ending on September 30, 1999) may be borrowed on secured or unsecured notes
of ComEd 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 ComEd'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 ComEd. Collateral, if required for the
borrowings, would consist of first mortgage bonds issued under and in
accordance with the provisions of ComEd's mortgage. ComEd is obligated to pay
commitment fees with respect to $915 million of such lines of credit.
Unicom Enterprises has a $200 million credit facility which will expire in
1997 of which $175 million was unused as of September 30, 1995. The credit
facility can be used by Unicom Enterprises to finance investments in
unregulated energy-related businesses and projects, including Unicom Thermal,
and for general corporate purposes. The credit facility is guaranteed by Unicom
and includes certain covenants with respect to Unicom's and Unicom Enterprises'
operations. Such covenants include, among other things, (i) a requirement that
Unicom and its consolidated subsidiaries maintain a tangible net worth at least
$10 million over that of ComEd and its consolidated subsidiaries, (ii) a
requirement that Unicom's consolidated debt to consolidated capitalization not
exceed 0.65 to 1, (iii) restrictions on the indebtedness for borrowed money
that Unicom (excluding ComEd) and Unicom Enterprises may incur, and (iv) a
requirement that Unicom own 100% of the outstanding stock of Unicom Enterprises
and at least 80% of the outstanding stock of ComEd; and provide that Unicom may
not declare or pay dividends during the continuance of an event of default.
Interest rates for borrowings under the credit facility are set at the time of
a borrowing and are based on either a prime interest rate or a floating rate
bank index plus a spread which varies with the credit rating of ComEd's
outstanding first mortgage bonds.
(11) 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.
ComEd, 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
ComEd's nuclear generating stations beginning not later than January 1998;
however, this delivery schedule is expected to be delayed significantly. The
contract with the DOE requires ComEd 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. As
provided for under the contract, ComEd has elected to pay the one-time fee,
with interest, just prior to the first delivery of spent nuclear fuel to the
DOE. The liability for the one-time fee and the related interest is reflected
in the Consolidated Balance Sheets.
(12) FAIR VALUE OF FINANCIAL INSTRUMENTS. The following methods and
assumptions were used to estimate the fair value of financial instruments
either held or issued and outstanding. The disclosure of such information does
not purport to be a market valuation of Unicom and subsidiary companies as a
whole. The impact of any realized or unrealized gains or losses related to such
financial instruments on the financial position or results of operations of
Unicom and subsidiary companies is primarily dependent on the treatment
authorized under future ComEd ratemaking proceedings.
21
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
Investments. Securities included in the 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 and based on published market data, as of December 31, 1994 and
September 30, 1995 was as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1994 SEPTEMBER 30, 1995
-------------------------------- --------------------------------
UNREALIZED
GAINS UNREALIZED
COST BASIS (LOSSES) FAIR VALUE COST BASIS GAINS FAIR VALUE
---------- ---------- ---------- ---------- ---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Short-term
investments.......... $ 65,203 $ 106 $ 65,309 $ 44,834 $ 290 $ 45,124
U.S. Government and
Agency issues........ 94,450 (562) 93,888 171,814 10,204 182,018
Municipal bonds....... 478,074 (7,301) 470,773 441,826 22,605 464,431
Common stock.......... 220,395 9,069 229,464 338,997 87,278 426,275
Other................. 18,788 2,722 21,510 21,549 6,453 28,002
-------- ------- -------- ---------- -------- ----------
$876,910 $ 4,034 $880,944 $1,019,020 $126,830 $1,145,850
======== ======= ======== ========== ======== ==========
</TABLE>
At September 30, 1995, 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....................................... $ 44,834 $ 45,124
1 through 5 years................................... 64,309 65,709
5 through 10 years.................................. 216,102 229,325
Over 10 years....................................... 342,418 360,869
</TABLE>
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, nine months and twelve
months ended September 30, 1994 and 1995 were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED TWELVE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30
-------------------- ---------------------- ----------------------
1994 1995 1994 1995 1994 1995
--------- --------- --------- ----------- --------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Gross proceeds from
sales of securities.... $ 251,996 $ 957,044 $ 587,026 $ 2,375,626 $ 647,251 $ 2,599,968
Less cost based on spe-
cific identification... (254,022) (950,329) (586,351) (2,364,769) (645,021) (2,590,115)
--------- --------- --------- ----------- --------- -----------
Realized gains (losses)
on sales of securities. $ (2,026) $ 6,715 $ 675 $ 10,857 $ 2,230 $ 9,853
Other realized fund
earnings net of ex-
penses................. 10,521 12,693 28,150 35,024 35,566 44,722
--------- --------- --------- ----------- --------- -----------
Total realized net earn-
ings of the funds...... $ 8,495 $ 19,408 $ 28,825 $ 45,881 $ 37,796 $ 54,575
Unrealized gains (loss-
es).................... 9,926 31,049 (38,527) 122,796 (41,607) 103,375
--------- --------- --------- ----------- --------- -----------
Total net earnings
(losses) of the funds. $ 18,421 $ 50,457 $ (9,702) $ 168,677 $ (3,811) $ 157,950
========= ========= ========= =========== ========= ===========
</TABLE>
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 ComEd preferred and preference
stocks, ComEd-obligated mandatorily redeemable preferred securities of the
Trust and long-term debt were obtained
22
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
from an independent consultant. The estimated fair values, which include the
current portions of redeemable preference stock and long-term debt but exclude
accrued interest and dividends of preferred and preference stocks and preferred
securities, as of December 31, 1994 and September 30, 1995 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1994 SEPTEMBER 30, 1995
--------------------------------- --------------------------------
CARRYING UNREALIZED CARRYING UNREALIZED
VALUE (GAINS) FAIR VALUE VALUE LOSSES FAIR VALUE
---------- ---------- ---------- ---------- ---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
ComEd preferred and
preference stocks.... $ 818,111 $ (64,443) $ 753,668 $ 803,792 $ 1,321 $ 805,113
ComEd-obligated
mandatorily
redeemable preferred
securities of the
Trust................ $ -- $ -- $ -- $ 200,000 $ -- $ 200,000
Long-term debt........ $7,448,236 $(450,429) $6,997,807 $7,210,023 $346,307 $7,556,330
</TABLE>
Long-term notes payable to banks, which are not included in the above table,
amounted to $400 million and $150 million at December 31, 1994 and September
30, 1995, respectively. Such notes, for which interest is paid at prevailing
rates, are included in the consolidated financial statements at cost, which
approximates their fair value.
Current Liabilities. The carrying value of notes payable, which consists of
bank loans maturing within one year, approximates the fair value because of the
short maturity of these instruments. See "Capitalization" above for a
discussion of the fair value of the current portions 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, 1994 and September 30, 1995; therefore, the carrying value is
equal to the fair value.
(13) PENSION BENEFITS. ComEd and the Indiana Company 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, 1994 and September 30, 1995 pension
liabilities and related data were estimated pending completion of the January
1, 1995 actuarial valuation.
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. A total of 679 employees accepted
the program, resulting in the recognition of approximately $34 million of
additional pension cost and an additional increase to the projected benefit
obligation of that $34 million and $41 million of unrecognized net loss. The
charge to income was approximately $20.5 million after reflecting income tax
effects as a result of the program.
23
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
The funded status of these plans at December 31, 1994 and September 30, 1995
was as follows:
<TABLE>
<CAPTION>
SEPTEMBER
DECEMBER 31, 30,
1994 1995
------------ -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Actuarial present value of accumulated pension plan
benefits:
Vested benefit obligation........................ $(2,071,000) $(2,148,000)
Nonvested benefit obligation..................... (442,000) (459,000)
----------- -----------
Accumulated benefit obligation................... $(2,513,000) $(2,607,000)
Effect of projected future compensation levels... (423,000) (438,000)
----------- -----------
Projected benefit obligation..................... $(2,936,000) $(3,045,000)
Fair value of plan assets, invested primarily in
U.S. Government, government-sponsored corporation
and agency securities, fixed income funds,
registered investment companies, equity index
funds and other equity funds...................... 2,547,000 2,956,000
----------- -----------
Plan assets less than projected benefit obligation. $ (389,000) $ (89,000)
Unrecognized prior service cost.................... 22,000 21,000
Unrecognized transition asset...................... (155,000) (146,000)
Unrecognized net loss (gain)....................... 226,000 (127,000)
----------- -----------
Accrued pension liability........................ $ (296,000) $ (341,000)
=========== ===========
</TABLE>
The assumed discount rate was 8.0% at December 31, 1994 and September 30,
1995, 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 1993, 1994 and 1995:
<TABLE>
<CAPTION>
1993 1994 1995
----- ----- -----
<S> <C> <C> <C>
Annual discount rate.......................................... 7.50% 7.50% 8.00%
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% 9.75%
</TABLE>
The components of pension costs, portions of which were recorded as
components of construction costs, for the three months, nine months and twelve
months ended September 30, 1994 and 1995 were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED TWELVE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30
------------------- -------------------- --------------------
1994 1995 1994 1995 1994 1995
-------- --------- --------- --------- --------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Service cost............ $ 23,000 $ 20,000 $ 73,000 $ 62,000 $ 97,000 $ 86,000
Interest cost on pro-
jected benefit obliga-
tion................... 52,000 57,000 160,000 171,000 211,000 224,000
Actual loss (return) on
plan assets............ (64,000) (159,000) 35,000 (534,000) (1,000) (530,000)
Early retirement program
cost................... 1,000 -- 33,000 -- 33,000 1,000
Net amortization and de-
ferral................. (2,000) 97,000 (234,000) 346,000 (260,000) 276,000
-------- --------- --------- --------- --------- ---------
$ 10,000 $ 15,000 $ 67,000 $ 45,000 $ 80,000 $ 57,000
======== ========= ========= ========= ========= =========
</TABLE>
In addition, an employee savings and investment plan is available to certain
eligible employees of ComEd, Cotter, Unicom Thermal and the Indiana Company.
Each participating employee may contribute up to 20% of such employee's base
pay and the participating companies match such contribution equal to 70% of up
to the first 5% of contributed base salary. The participating companies'
contributions were $6,129,000 and $6,571,000 for the three months ended
September 30, 1994 and 1995, respectively, $17,556,000 and $18,702,000 for the
nine months ended September 30, 1994 and 1995, respectively, and $23,539,000
and $23,963,000 for the twelve months ended September 30, 1994 and 1995,
respectively.
24
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(14) POSTRETIREMENT HEALTH CARE BENEFITS. ComEd and the Indiana Company
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 employees become eligible for postretirement health
care benefits when they reach retirement age while working for the companies.
ComEd and the Indiana Company fund the liability for postretirement health care
benefits through trust funds based upon actuarially determined contributions
that take into account the amount deductible for income tax purposes. The
December 31, 1994 and September 30, 1995 postretirement health care liabilities
and related data were estimated pending completion of the January 1, 1995
actuarial valuation.
The funded status of the plan at December 31, 1994 and September 30, 1995 was
as follows:
<TABLE>
<CAPTION>
SEPTEMBER
DECEMBER 31, 30,
1994 1995
------------ -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Actuarial present value of accumulated
postretirement health care obligation:
Retirees.......................................... $ (524,000) $ (556,000)
Active fully eligible participants................ (7,000) (10,000)
Other participants................................ (560,000) (594,000)
----------- -----------
Accumulated benefit obligation.................... $(1,091,000) $(1,160,000)
Fair value of plan assets, invested primarily in
S&P 500 common stocks and U.S. Government, govern-
ment agency, municipal and listed corporate obli-
gations........................................... 503,000 583,000
----------- -----------
Plan assets less than accumulated postretirement
health care obligation............................ $ (588,000) $ (577,000)
Unrecognized transition obligation................. 531,000 509,000
Unrecognized net gain.............................. (61,000) (137,000)
----------- -----------
Accrued liability for postretirement health care... $ (118,000) $ (205,000)
=========== ===========
</TABLE>
For 1994 and 1995, different health care cost trends are used for pre-
Medicare and post-Medicare expenses. Pre-Medicare trend rates are 14% for 1994
grading down in 0.5% annual increments to 5%. Post-Medicare trend rates are
11.5% for 1994 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,
1995 by approximately $197 million and increase the aggregate of the service
and interest cost components of plan costs by approximately $7 million, $21
million and $28 million for the three months, nine months and twelve months
ended September 30, 1995, respectively. The assumed discount rate used was 8.0%
at December 31, 1994 and September 30, 1995 and for the nine months ended
September 30, 1995, and was 7.5% for the years 1993 and 1994. The annual long-
term rate of return on plan assets was 9.5% for the years 1993 and 1994, or
9.1% for the year 1993 and 9.04% for the year 1994, after including income tax
effects, and was 9.75%, or 9.32% after including income tax effects, for the
nine months ended September 30, 1995.
The components of postretirement health care costs, portions of which were
recorded as components of construction costs, for the three months, nine months
and twelve months ended September 30, 1994 and 1995 were as follows:
<TABLE>
<CAPTION>
THREE MONTHS TWELVE MONTHS
ENDED NINE MONTHS ENDED ENDED
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30
------------------ ------------------- ------------------
1994 1995 1994 1995 1994 1995
-------- -------- -------- --------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Service cost............ $ 12,000 $ 10,000 $ 36,000 $ 32,000 $ 47,000 $ 43,000
Interest cost on accumu-
lated benefit obliga-
tion................... 20,000 21,000 61,000 64,000 79,000 84,000
Actual loss (return) on
plan assets............ (17,000) (32,000) 2,000 (107,000) (4,000) (100,000)
Amortization of transi-
tion obligation........ 7,000 7,000 21,000 21,000 29,000 29,000
Severance plan cost..... -- 2,000 -- 2,000 -- 2,000
Other................... 7,000 23,000 (32,000) 75,000 (34,000) 58,000
-------- -------- -------- --------- -------- --------
$ 29,000 $ 31,000 $ 88,000 $ 87,000 $117,000 $116,000
======== ======== ======== ========= ======== ========
</TABLE>
25
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(15) INCOME TAXES. The components of the net deferred income tax liability at
December 31, 1994 and September 30, 1995 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1994 1995
------------ -------------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Deferred income tax liabilities:
Accelerated cost recovery and liberalized deprecia-
tion, net of removal costs........................ $3,266,930 $3,355,361
Overheads capitalized.............................. 266,159 255,401
Repair allowance................................... 210,655 203,173
Regulatory assets recoverable through future rates. 1,791,395 1,708,485
Deferred income tax assets:
Postretirement benefits............................ (177,991) (204,773)
Unbilled revenues.................................. (90,396) (105,136)
Loss carryforward.................................. (10,090) --
Alternative minimum tax............................ (283,331) (168,351)
Unamortized investment tax credits to be settled
through future rates.............................. (471,058) (456,919)
Other regulatory liabilities to be settled through
future rates...................................... (179,755) (149,380)
Other--net......................................... (59,528) (67,085)
---------- ----------
Net deferred income tax liability................... $4,262,990 $4,370,776
========== ==========
</TABLE>
The $108 million increase in the net deferred income tax liability from
December 31, 1994 to September 30, 1995 is comprised of $146 million of
deferred income tax expense and a $38 million decrease in regulatory assets net
of regulatory liabilities pertaining to income taxes for the period. The
deferred income tax liability for regulatory assets primarily relates to the
equity component of AFUDC which is 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. The deferred income tax asset for other regulatory liabilities
primarily relates to deferred income taxes provided at rates in excess of the
current statutory rate.
The components of net income tax expense charged to continuing operations for
the three months, nine months and twelve months ended September 30, 1994 and
1995 were as follows:
<TABLE>
<CAPTION>
THREE MONTHS TWELVE MONTHS
ENDED NINE MONTHS ENDED ENDED
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30
------------------ ------------------ -------------------
1994 1995 1994 1995 1994 1995
-------- -------- -------- -------- --------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Operating income:
Current income taxes... $ 80,491 $195,245 $138,783 $324,363 $(127,433) $343,922
Deferred income taxes.. 114,476 96,943 111,048 144,352 184,249 201,712
Investment tax credits
deferred--net......... (7,195) (7,177) (21,620) (21,535) (29,142) (28,672)
Other (income) and de-
ductions............... 1,833 (5,344) (19,005) (5,870) (32,144) (9,362)
-------- -------- -------- -------- --------- --------
Net income taxes charged
to continuing opera-
tions.................. $189,605 $279,667 $209,206 $441,310 $ (4,470) $507,600
======== ======== ======== ======== ========= ========
</TABLE>
26
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
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, nine months and twelve months ended
September 30, 1994 and 1995:
<TABLE>
<CAPTION>
THREE MONTHS TWELVE MONTHS
ENDED NINE MONTHS ENDED ENDED
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30
------------------ -------------------- --------------------
1994 1995 1994 1995 1994 1995
-------- -------- -------- ---------- -------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Net income (loss)....... $263,661 $407,433 $276,342 $ 604,900 $(66,454) $ 683,491
Net income taxes charged
to continuing
operations............. 189,605 279,667 209,206 441,310 (4,470) 507,600
Provision for dividends
on--
ComEd preferred and
preference stocks...... 16,966 16,674 47,994 50,447 63,801 67,380
ComEd-obligated
mandatorily redeemable
preferred securities
of the Trust........... -- 188 -- 188 -- 188
-------- -------- -------- ---------- -------- ----------
Pre-tax income (loss)
before provisions for
dividends.............. $470,232 $703,962 $533,542 $1,096,845 $ (7,123) $1,258,659
======== ======== ======== ========== ======== ==========
Effective income tax
rate................... 40.3% 39.7% 39.2% 40.2% 62.8% 40.3%
======== ======== ======== ========== ======== ==========
</TABLE>
The principal differences between net income taxes charged to continuing
operations and the amounts computed at the federal statutory rate of 35% for
the three months, nine months and twelve months ended September 30, 1994 and
1995 were as follows:
<TABLE>
<CAPTION>
THREE MONTHS TWELVE MONTHS
ENDED NINE MONTHS ENDED ENDED
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30
------------------ ------------------ ------------------
1994 1995 1994 1995 1994 1995
-------- -------- -------- -------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Federal income taxes
computed at statutory
rate................... $164,581 $246,387 $186,740 $383,896 $ (2,493) $440,531
Equity component of
AFUDC which was ex-
cluded from taxable
income................. (1,825) (992) (6,174) (3,046) (8,466) (4,792)
Amortization of invest-
ment tax credits....... (7,190) (7,177) (21,602) (21,535) (29,109) (28,744)
State income taxes, net
of federal income
taxes.................. 22,670 35,228 28,399 58,513 6,236 70,253
Differences between book
and tax accounting,
primarily property-
related deductions..... 7,553 5,435 15,481 21,213 22,724 27,903
Other--net.............. 3,816 786 6,362 2,269 6,638 2,449
-------- -------- -------- -------- -------- --------
Net income taxes charged
to continuing opera-
tions.................. $189,605 $279,667 $209,206 $441,310 $ (4,470) $507,600
======== ======== ======== ======== ======== ========
</TABLE>
Current federal income tax liabilities which were recorded prior to 1995
included excess amounts of AMT over the regular federal income tax, which
amounts were also recorded as decreases to deferred federal income taxes. The
excess amounts of AMT were carried forward and a portion has been applied as a
credit against the 1995 regular federal income tax liability. The excess
amounts of AMT can be carried forward indefinitely as a credit against future
years' regular federal income tax liabilities.
(16) TAXES, EXCEPT INCOME TAXES. Provisions for taxes, except income taxes,
for the three months, nine months and twelve months ended September 30, 1994
and 1995 were as follows:
<TABLE>
<CAPTION>
THREE MONTHS TWELVE MONTHS
ENDED NINE MONTHS ENDED ENDED
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30
------------------- ----------------- -------------------
1994 1995 1994 1995 1994 1995
--------- --------- -------- -------- --------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Illinois public utility
revenue................ $ 57,686 $ 67,421 $157,475 $175,362 $ 193,650 $ 229,150
Illinois invested capi-
tal.................... 27,559 27,980 82,047 82,090 109,378 109,416
Municipal utility gross
receipts............... 42,743 53,648 111,237 128,554 119,267 162,328
Real estate............. 44,084 45,868 135,106 132,821 174,628 177,936
Municipal compensation.. 21,222 24,449 55,831 59,876 59,043 76,691
Other--net.............. 17,585 20,682 57,542 61,018 71,201 72,757
--------- --------- -------- -------- --------- ---------
$ 210,879 $ 240,048 $599,238 $639,721 $ 727,167 $ 828,278
========= ========= ======== ======== ========= =========
</TABLE>
27
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(17) LEASE OBLIGATIONS OF SUBSIDIARY COMPANIES. Under its nuclear fuel lease
arrangement, ComEd 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. With respect to the commercial paper/bank borrowing
portion, $20 million currently will expire on November 23, 1996 and $280
million will expire on November 23, 1997. ComEd has asked for an extension of
the expiration dates. At September 30, 1995, ComEd's obligation to the lessor
for leased nuclear fuel amounted to approximately $634 million. ComEd has
agreed to make lease payments which cover the amortization of the nuclear fuel
used in ComEd's reactors plus the lessor's related financing costs. ComEd has
an obligation for spent nuclear fuel disposal costs of leased nuclear fuel.
Future minimum rental payments, net of executory costs, at September 30, 1995
for capital leases are estimated to aggregate $724 million, including $65
million in 1995, $253 million in 1996, $155 million in 1997, $103 million in
1998, $67 million in 1999 and $81 million in 2000-2043. The estimated interest
component of such rental payments aggregates $91 million. The estimated
portions of obligations due within one year under capital leases are included
in current liabilities and approximated $147 million and $185 million at
December 31, 1994 and September 30, 1995, respectively.
Future minimum rental payments at September 30, 1995 for operating leases are
estimated to aggregate $158 million, including $1 million in 1995, $9 million
in 1996, $10 million in 1997, $10 million in 1998, $9 million in 1999 and $119
million in 2000-2024.
(18) INVESTMENTS IN URANIUM-RELATED PROPERTIES. In May 1994, ComEd 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 net income by $34 million or $0.16 per common share for the nine months
and twelve months ended September 30, 1994.
(19) JOINT PLANT OWNERSHIP. ComEd has a 75% undivided ownership interest in
the Quad-Cities nuclear generating station. Further, ComEd is responsible for
75% of all costs which are charged to appropriate investment, operation or
maintenance accounts and provides its own financing. At September 30, 1995, for
its share of ownership in the station, ComEd had an investment of $552 million
in production and transmission plant in service (before reduction of $181
million for the related accumulated provision for depreciation) and $76 million
in construction work in progress.
(20) COMMITMENTS AND CONTINGENT LIABILITIES. Purchase commitments,
principally related to construction and nuclear fuel, approximated $1,168
million at September 30, 1995, comprised of approximately $1,158 million for
ComEd and the Indiana Company and approximately $10 million for Unicom Thermal.
In addition, ComEd has substantial commitments for the purchase of coal.
ComEd's coal costs are high compared to those of other utilities. ComEd'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. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations," subcaption "Liquidity and
Capital Resources," for additional information regarding ComEd's purchase
commitments.
ComEd is a member of 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 ComEd would not be liable for a retrospective premium
adjustment in the event of a single incident. However, ComEd could be subject
to a maximum assessment of approximately $58 million in any policy year, in the
event losses exceed accumulated reserve funds.
28
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
ComEd also is a member of 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 ComEd would not be liable for a retrospective premium adjustment in
the event of a single incident under the replacement power coverage and the
property damage coverage. However, ComEd could be subject to maximum
assessments, in any policy year, of approximately $27 million and $89 million
in the event losses exceed accumulated reserve funds under the replacement
power and property damage coverages, respectively.
Under certain circumstances, member companies are eligible to continue to
receive distributions from accumulated reserve funds, if declared by NML or
NEIL, after insurance coverage has terminated on a nuclear generating station.
ComEd expects that any such post-coverage distributions would begin about the
time a station is decommissioned and continue for an undetermined period.
ComEd's twelve operating nuclear units have estimated remaining service lives
ranging from 11 to 33 years. Considering the circumstances related to the
declaration of such distributions and the extended period over which such
distributions may be declared, ComEd does not expect that any such
distributions would have a material impact on its financial position or results
of operations.
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,
ComEd 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, ComEd 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. ComEd would currently be subject to a
maximum assessment of approximately $37 million in the event losses exceed
accumulated reserve funds.
Shareholder derivative lawsuits were filed in 1992 and 1993 in the Circuit
Court against current and former directors of ComEd alleging that they breached
their fiduciary duty and duty of care to ComEd in connection with the
management of the activities associated with the construction of ComEd's four
most recently completed nuclear generating units. The lawsuits sought
restitution to ComEd by the defendants for unquantified and undefined losses
and costs alleged to have been incurred by ComEd. Both lawsuits were dismissed
by the Circuit Court and that dismissal was affirmed by the Illinois Appellate
Court. Plaintiffs have indicated that they may appeal.
During 1989 and 1991, actions were brought in federal and state courts in
Colorado against ComEd and Cotter seeking unspecified damages and injunctive
relief based on allegations 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. In February 1994, a federal jury returned nominal dollar verdicts on
eight bellwether plaintiffs' claims in these cases. Plaintiffs have appealed
those judgments. Although the remaining cases will necessarily involve the
resolution of numerous contested issues of fact and law, Unicom's determination
is that these actions will not have a material impact on its financial position
or results of operations.
ComEd is involved in administrative and legal proceedings concerning air
quality, water quality and other matters. The outcome of these proceedings may
require increases in future construction expenditures and operating expenses
and changes in operating procedures. ComEd and its subsidiaries are or are
likely to become parties to proceedings initiated by the U.S. EPA, state
agencies and/or other responsible parties under CERCLA with respect to a number
of sites, including MGP sites, or may voluntarily undertake to investigate and
remediate sites for which they may be liable under CERCLA.
29
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONCLUDED
ComEd 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 ComEd facilities have been constructed. To date, ComEd has
identified 44 former MGP sites for which it may be liable for remediation.
ComEd presently estimates that its costs of former MGP site investigation and
remediation will aggregate from $25 million to $150 million in current-year
(1995) 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 ComEd is not able to determine the most probable
liability for such MGP costs, in accordance with accounting standards, a
reserve of approximately $25 million has been recorded as of December 31, 1994
and September 30, 1995, which reflects the low end of the range of ComEd's
estimate of the liability associated with former MGP sites. In addition, as of
December 31, 1994 and September 30, 1995, a reserve of $8 million has been
recorded, representing ComEd's estimate of the liability associated with
cleanup costs of remediation sites other than former MGP sites. Unicom and
ComEd presently estimate that ComEd's 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 Unicom or ComEd. 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.
The Clean Air Amendments require reductions in sulfur dioxide emissions from
ComEd's Kincaid station. The Clean Air 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
have been issued by the U.S. EPA based largely on historical levels of sulfur
dioxide emissions. These allowances are transferable and marketable. ComEd's
ability to increase generation in the future to meet expected increased demand
for electricity will depend in part on ComEd and the Indiana Company's ability
to acquire additional allowances or to reduce emissions below otherwise
allowable levels from their existing generating plants. In addition, the Clean
Air Amendments require studies to determine what controls, if any, should be
imposed on utilities to control air toxic emissions, including mercury. ComEd
is currently burning low sulfur coal at Kincaid station to meet Clean Air Act
Phase I requirements. ComEd will determine future compliance plans for Kincaid
station as necessary.
(21) SUBSEQUENT EVENTS. On October 18, 1995, ComEd announced that on December
1, 1995 it will redeem all $150 million outstanding of its 8 1/8% First
Mortgage Bonds, Series 36, due June 1, 2007, and all $150 million outstanding
of its 8 1/4% First Mortgage Bonds, Series 37, due December 1, 2007.
On October 31, 1995, the Indiana Company announced that on December 15, 1995
it will redeem all $20 million outstanding of its 9 1/8% Pollution Control
Revenue Bonds, Series 1980, due June 15, 2010.
On November 3, 1995, ComEd redeemed all $175 million outstanding of its 9
1/8% First Mortgage Bonds, Series 61, due January 15, 2014, and all $150
million outstanding of its 9 5/8% First Mortgage Bonds, Series 72, due July 1,
2019.
ComEd expects to record a charge in the fourth quarter of 1995 on its
Statements of Consolidated Income related to the early redemptions of the
above-mentioned long-term debt, which will reduce net income by approximately
$20 million or $0.09 per common share.
On October 30, 1995, ComEd declared an impasse in the collective bargaining
agreement negotiations with its union and implemented virtually all of the
terms of its last offered proposal prior to the impasse. Those terms include,
among other things, a voluntary separation offer for employees. See "Financial
Condition" under the subcaption "Liquidity and Capital Resources" in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
30
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
On September 1, 1994, a corporate restructuring took place in which Unicom
became the parent holding company of ComEd and Unicom Enterprises, an
unregulated subsidiary engaged, through a subsidiary, in energy service
activities. The purpose of the restructuring was, in part, to permit Unicom
Enterprises to engage in energy service activities without the prior approval
of, or being regulated by, the ICC, in part to permit timely responses to
competitive activities which could adversely affect ComEd's utility business
and in part to permit Unicom to take advantage of unregulated business
opportunities.
ComEd continues to represent substantially all of the assets, revenues and
net income of Unicom; and Unicom's resources and results of operations are
largely dependent on, and reflect, those of ComEd. Unicom's unregulated
subsidiaries are not expected to make material contributions to Unicom's
revenues or results of operations in the near future. Consequently, the
following discussion focuses on ComEd's utility operations although information
is also provided about Unicom's unregulated operations.
LIQUIDITY AND CAPITAL RESOURCES
UTILITY OPERATIONS
------------------
Capital Budgets. ComEd and its electric utility subsidiary, the Indiana
Company, have a construction program for the three-year period 1995-97 which
consists principally of improvements to ComEd's and the Indiana Company's
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 ComEd's system. The program, as approved by Unicom and
ComEd in December 1994, calls for electric plant and equipment expenditures of
approximately $2,750 million (excluding nuclear fuel expenditures of
approximately $800 million). It is estimated that such construction
expenditures, with cost escalation computed at 3.5% annually, will be as
follows:
<TABLE>
<CAPTION>
1995 1996 1997 TOTAL
---- ---- ---- ------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C>
Production............................................. $415 $395 $360 $1,170
Transmission and Distribution.......................... 410 445 455 1,310
General................................................ 95 90 85 270
---- ---- ---- ------
Total.............................................. $920 $930 $900 $2,750
==== ==== ==== ======
</TABLE>
In October 1994, ComEd made a commitment to provide for the replacement of
the steam generators at its Braidwood Unit 1 and Byron Unit 1 nuclear
generating plants, for service in the years 1998 and 1999, respectively, at a
total estimated cost of approximately $470 million. Approximately $170 million
of this estimated cost is included in the construction expenditures shown
above. See "Part II. Other Information, Item 1. Legal Proceedings," subcaption
"Nuclear Matters," herein for additional information.
ComEd'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 1998 and each year thereafter
through the year 2000. The projected resource needs reflect the current
planning reserve margin recommendations of MAIN, the reliability council of
which ComEd is a member. ComEd's forecasts indicate that the need for
additional resources during this period would exist only during the summer
months. ComEd 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. Based on
current market information, ComEd believes that adequate resources, including
cost-effective demand-side management resources, non-
31
<PAGE>
utility generation resources and other-utility power purchases, could be
obtained sufficient to meet forecasted requirements through the year 2000.
ComEd's 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. ComEd 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, financial constraints may require compensating or
greater reductions in other construction expenditures. See "Regulation" below
and "Part II. Other Information, Item 1. Legal Proceedings," subcaption
"Nuclear Matters," herein for additional information.
Purchase commitments for ComEd and the Indiana Company, principally related
to construction and nuclear fuel, approximated $1,158 million at September 30,
1995. In addition, ComEd has substantial commitments for the purchase of coal
as indicated in the following table.
<TABLE>
<CAPTION>
CONTRACT PERIOD COMMITMENT(1)
-------- --------- -------------
<S> <C> <C>
Black Butte Coal Co. ............................. 1995-2007 $1,038
Decker Coal Co. .................................. 1995-2015 $ 767
Big Horn Coal Co. ................................ 1998 $ 22
Other commitments................................. 1995-1996 $ 9
</TABLE>
--------
(1) Estimated costs in millions of dollars FOB mine. No estimate of
future cost escalation has been made.
For additional information concerning these coal contracts and ComEd's fuel
supply, see "Results of Operations" below and Notes 1 and 20 of Notes to
Financial Statements.
Capital Resources. ComEd has forecast that internal sources will provide more
than three-fourths of the funds required for ComEd's construction program and
other capital requirements, including nuclear fuel expenditures, contributions
to nuclear decommissioning funds, sinking fund obligations and refinancing of
scheduled debt maturities (the annual sinking fund requirements and scheduled
maturities for ComEd preference stock and for long-term debt are summarized in
Notes 7 and 9, respectively, of Notes to Financial Statements). The forecast
assumes the rate levels reflected in the Rate Order remain in effect.
The type and amount of external financing will depend on financial market
conditions and the needs and capital structure of ComEd at the time of such
financing. A portion of ComEd's financing is expected to be provided through
the continued sale and leaseback of nuclear fuel through ComEd's existing
nuclear fuel lease facility. See Note 17 of Notes to Financial Statements.
ComEd has approximately $915 million of unused bank lines of credit at
September 30, 1995 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 ComEd'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 ComEd's mortgage.
See Note 10 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, nine
months and twelve months ended September 30, 1995.
During the first nine months of 1995, Unicom issued 265,524 shares of common
stock for approximately $6 million under its employee stock plans. The Trust
also issued $200 million of ComEd-obligated mandatorily redeemable preferred
securities, the proceeds of which were used to purchase subordinated deferrable
interest notes due September 30, 2035 of ComEd. ComEd sold and leased back
approximately $193 million of nuclear fuel through its existing nuclear fuel
lease facility.
As of November 8, 1995, ComEd has an effective "shelf" registration statement
with the SEC for the future sale of up to an additional $805 million of debt
securities and cumulative preference stock for general corporate purposes of
ComEd, including the discharge or refund of other outstanding securities.
32
<PAGE>
Financial Condition. ComEd's financial condition will continue to depend on
its ability to generate revenues to cover its costs and to maintain adequate
debt and preferred and preference stock coverages and common stock equity
earnings. ComEd has no significant revenues other than from the sale of
electricity. ComEd's management recognizes that competitive and regulatory
circumstances in Illinois may limit its ability to raise its rates.
Consequently, ComEd's financial condition will be affected by, and ComEd's
management is addressing, actions to maintain and increase sales, to control
operating and capital expenditures and to anticipate competitive activities.
See "Regulation" below.
During the past several years, ComEd has instituted cost reduction plans
including various workforce reductions. Most recently, such efforts included an
offer of voluntary early retirement which was made to ComEd and the Indiana
Company management, non-union and union employees eligible to retire or who
became eligible to retire after December 31, 1993 and before April 1, 1995.
Such program resulted in a charge to income of approximately $20.5 million
(after reflecting income tax effects), substantially all of which was recorded
during 1994. ComEd is continuing to examine methods of reducing the size of its
workforce, including special severance offers. As discussed under "Litigation"
in "Part II. Other Information, Item 1, Legal Proceedings," ComEd has declared
an impasse in the collective bargaining agreement negotiations with its union
and has implemented virtually all of the terms of its last offered proposal
prior to the impasse. Those terms include, among other things, a wage increase
retroactive to April 1, 1995 (which would be implemented in January 1996) and a
voluntary separation offer for employees who accept and leave ComEd's employ by
year-end 1995. The union has filed an unfair labor practice charge with respect
to ComEd's action with the National Labor Relations Board. If the voluntary
separation offer proceeds, ComEd estimates that such offer, combined with
separation plans already offered to selected groups of non-union employees,
could result in a charge to income of approximately $75 million to $100 million
(after reflecting income tax effects) or $0.35 to $0.47 per common share
(depending upon the level of acceptance). This charge to income would occur
primarily in the fourth quarter of 1995 when most of the acceptances of the
offers are expected to occur. However, ComEd would expect to realize cost
savings in future years as a result of the reduction in personnel.
ComEd has also examined, and is continuing to examine, the possibility of
disposing of one or more of its fossil generating stations to a third party or
parties and entering into a long-term power purchase arrangement. In connection
with such examination, ComEd has solicited and received binding proposals with
respect to such a transaction involving its State Line and Kincaid generating
stations, which it is currently evaluating. As presently structured, such a
transaction would involve a sale of the generating station assets at a price
approximating their book value and a fifteen-year power purchase arrangement.
Any such transaction would be subject to the negotiation of definitive
agreements and regulatory approvals and is not expected to have a material
impact on ComEd's consolidated financial position or results of operations.
ComEd's securities and other securities guaranteed by ComEd are currently
rated by three principal securities rating agencies 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- BBB-
Preference stock................................. baa3 BBB- BBB-
ComEd-obligated mandatorily redeemable preferred
securities of the Trust......................... baa3 BBB- BBB-
Commercial paper................................. P-2 A-2 D-2
</TABLE>
In June 1995, Standard & Poor's changed its rating outlook on ComEd from
negative to stable. As of April 1995, Moody's rating outlook on ComEd remained
stable. In August 1995, Duff & Phelps upgraded its rating of ComEd's preferred
and preference stock from BB+ to BBB- and reaffirmed that its rating outlook on
ComEd remained stable. See "Part II. Other Information, Item 5. Market for
Registrant's
33
<PAGE>
Common Equity and Related Stockholder Matters" in Unicom's Annual Report on
Form 10-K for the year ended December 31, 1994, for additional information
regarding ComEd'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 place in which electric utilities like ComEd operate has become
more competitive as a result of technological and regulatory changes, 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
FERC to order electric utilities to transmit or "wheel" wholesale power for
others, and facilitates the creation of non-utility electric generating
companies. In March 1995, the FERC issued a NOPR seeking comments on proposals
intended to encourage a more competitive wholesale electric power market. The
NOPR addresses both open access transmission and stranded cost issues. ComEd is
unable to predict the structure and effect of any rule that the FERC may
ultimately adopt based upon the NOPR.
ComEd 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 ComEd's service
area have established subsidiary ventures to provide heating, ventilating and
air conditioning services, attempting to attract ComEd's customers. Also,
several utilities in the United States have established unregulated energy
services subsidiaries which pursue business opportunities outside of the
utilities' regular service areas. In addition, cogeneration and energy services
companies have begun soliciting ComEd's customers to provide alternatives to
using ComEd's electricity. In October 1993, the ICC granted ComEd 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 ComEd for the increased load in the absence
of the discount rates. In addition, in June 1994, the ICC granted ComEd 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 ComEd's system. The Illinois Appellate Court
reversed the ICC decision, ruling that state law prohibited the confidential
aspects of the contracts. ComEd has petitioned the Illinois Supreme Court to
review the reversal.
In 1994, the ICC formed a task force for the purpose of conducting a broad-
based and open examination of the expanding presence of market components
within the electric utility industry. Participants from more than 40
organizations, including representatives from the electric utility industry
(including ComEd), met to examine three broad issues: effects of regulation,
competition and future regulatory and legislative changes. In May 1995, the
task force issued its report sharing the views of the participants on the
issues.
Legislation has been passed in Illinois to review the need for changes in the
regulatory framework under which Illinois electric utilities operate. The Joint
Committee on Electric Utility Regulatory Reform was created pursuant to
House/Senate Joint Resolution 21 to develop any legislative reform proposals it
34
<PAGE>
finds necessary. A progress report, including specific legislative concepts, is
due by December 1, 1995. A final legislative proposal is to be delivered by
November 8, 1996. ComEd is participating as a member of the Technical Advisory
Group. In addition, ComEd was a lead participant in the Illinois Electric
Policy Summit, sponsored by the ICC and Northwestern University's J.L. Kellogg
Graduate School of Management, in September 1995. A bill allowing utilities to
submit plans for alternative regulation, such as price caps or incentive
regulation, has been signed by the Governor of Illinois. Both Illinois Power
Company and Central Illinois Light Company have filed proposed retail wheeling
experiments with the ICC. These experiments are currently the subject of
hearings. While each is limited in scope, ComEd believes that there are a
number of institutional and regulatory barriers to their implementation. ComEd
cannot predict whether, or in what form, these proposals will be approved.
ComEd announced at the Illinois Electric Policy Summit that it would be
announcing several customer initiatives before the end of 1995. These
proposals, although still under development, are intended to address the need
to give all customer classes the opportunity to benefit from competition, while
retaining the benefits, such as reliability, of current regulation and insuring
utilities' cost recovery for commitments made under the obligation to serve
customers. See "Regulation" and "Regulatory Assets and Liabilities" in Note 1
of Notes to Financial Statements.
Capital Structure. ComEd's ratio of long-term debt to total capitalization
has decreased to 49.5% at September 30, 1995 from 54.6% at December 31, 1994.
This decrease is related primarily to the retirement and early redemption of
long-term debt and the increase in current maturities of long-term debt
reclassified to current liabilities.
UNREGULATED OPERATIONS
----------------------
Unicom Enterprises is engaged, through its subsidiary, in energy service
activities which are not subject to utility regulation by state or federal
agencies. The subsidiary, Unicom Thermal, currently provides district cooling
services to office and other buildings from a central location in the city of
Chicago. District cooling involves, in essence, the production of chilled water
at a central location(s) and its circulation to and from such location(s) to
customers' buildings through a closed circuit of piping. Such water is
circulated through customers' premises for air conditioning. This process is
used in lieu of self-generated cooling utilizing CFC refrigerants. As a result
of the Clean Air Amendments, the manufacture and use of CFCs will be curtailed,
commencing in 1996, thereby creating an excellent marketing opportunity for
non-CFC based systems, such as district cooling. Unicom Thermal and the city of
Chicago have entered into a non-exclusive franchise agreement. Unicom Thermal
has secured several long-term contracts and began service in May 1995 but has
not generated significant sales revenues through September 30, 1995. Unicom
Thermal is in the process of negotiating with additional potential customers.
Capital Budgets. Unicom Thermal has forecasted capital expenditures for the
years 1995-97 of approximately $95 million, primarily representing the
construction costs of its district cooling facilities in the city of Chicago.
Construction of its first district cooling facility was completed in May 1995
and cost approximately $30 million. Unicom Thermal began construction on a
second district cooling plant in May 1995 and is in the initial stages of
detailed planning of a third production facility. As of September 30, 1995,
Unicom Thermal's purchase commitments, principally related to construction,
were approximately $10 million.
Capital Resources. Unicom expects to obtain funds to invest in its
unregulated subsidiaries principally from dividends received on its ComEd
common stock and from bank borrowings. While the amount of dividends on ComEd
common stock is expected to be greater than the amount of dividends on Unicom
common stock, the availability of such dividends is dependent on ComEd's
financial performance and cash position. Other forms of financing by ComEd of
Unicom or the unregulated subsidiaries, such as loans or additional equity
investments (none of which is expected), would be subject to the prior approval
of the ICC.
35
<PAGE>
Unicom Enterprises has a $200 million credit facility which will expire in
1997 of which $175 million was unused as of September 30, 1995. The credit
facility can be used by Unicom Enterprises to finance investments in
unregulated energy-related businesses and projects, including Unicom Thermal,
and for general corporate purposes. The credit facility is guaranteed by Unicom
and includes certain covenants with respect to Unicom's and Unicom Enterprises'
operations. Interest rates for borrowings under the credit facility are set at
the time of a borrowing and are based on either a prime interest rate or a
floating rate bank index plus a spread which varies with the credit rating of
ComEd's outstanding first mortgage bonds. See Note 10 of Notes to Financial
Statements for additional information regarding certain covenants with respect
to Unicom's and Unicom Enterprises' operations.
REGULATION
ComEd and the Indiana Company are subject to state and federal regulation in
the conduct of their respective businesses, including the operations of Cotter.
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
operational and capital expenditures.
Rate Proceedings. ComEd'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 consolidated financial statements, ComEd was
involved in a number of proceedings concerning its rates. The uncertainties
associated with such proceedings and related issues, among other things, led to
the Rate Matters Settlement and Fuel Matters Settlement (see Note 2 of Notes to
Financial Statements). The effects of the aforementioned rate proceedings and
settlements during the periods presented are discussed below under "Results of
Operations."
On January 9, 1995, the ICC issued the Rate Order in the proceedings relating
to ComEd's February 1994 rate increase request. The Rate Order provides, among
other things, for (i) an increase in ComEd's total revenues of approximately
$301.8 million (excluding add-on revenue taxes) or 5.2%, on an annual basis,
including a $303.2 million increase in base rates, (ii) the collection of
municipal franchise costs as an adder to base rates until May 1, 1995, when
ComEd began collecting such costs prospectively on an individual municipality
basis through a rider, and (iii) the use of a rider, with annual review
proceedings, to pass on to ratepayers increases or decreases in estimated costs
associated with the decommissioning of ComEd's nuclear generating units. See
"Depreciation and Decommissioning" in Note 1 of Notes to Financial Statements
for information related to the level of decommissioning cost collections
allowed in the Rate Order. The ICC also determined that the Units were 100%
"used and useful" and that the previously determined reasonable costs of such
Units, as depreciated, should be included in full in ComEd's rate base. The
rates provided in the Rate Order became effective on January 14, 1995; however,
they are being collected subject to refund as a result of subsequent judicial
action. As of September 30, 1995, electric operating revenues of approximately
$232 million (excluding revenue taxes) are subject to refund. Intervenors and
ComEd have filed appeals of the Rate Order with the Illinois Appellate Court.
Nuclear Matters. During the past several years, the NRC has placed two of
ComEd's nuclear generating stations, Zion station and Dresden station, on its
list of plants to be monitored closely. Although Zion station (which was placed
on the list in early 1991) was removed from that list in February 1993, Dresden
station (which was placed on the list in early 1992) remains on the list. In
June 1995, the NRC reported that over the past year performance at Dresden was
cyclical; plant material condition needs to be improved at Dresden and a more
effective work management system is needed to deal with the corrective
maintenance backlog. Accordingly, Dresden will remain on the NRC list of plants
to be monitored closely. Because of the age of Zion, Dresden and Quad-Cities
stations, ComEd anticipates continued expenditures in order to improve
reliability and to meet NRC regulatory expectations. Beginning in late 1992,
ComEd restructured its management of its nuclear operations division and since
that time has committed additional resources to the stations' operations.
36
<PAGE>
In January 1994, ComEd was notified by the NRC that ComEd's LaSalle County
and Quad-Cities stations were placed on the list of plants with adverse
performance trends. ComEd was informed that the NRC concerns about LaSalle
County station included, among other matters, deficient radiation worker
practices. The NRC concerns with Quad-Cities station included, among other
matters, deficiencies in the condition of certain station equipment and the
effectiveness of the operators of the units in identifying and responding to
certain operational problems. ComEd has provided written and verbal responses
to the NRC and is working to resolve the concerns. In February 1995, the NRC
concluded that LaSalle County had arrested the adverse trends in most areas and
"normal" designation should be returned. In June 1995, the NRC concluded that
the declining trends at Quad-Cities station also had been arrested in most
areas and normal designation should be returned. As noted above, ComEd
anticipates continued expenditures in order to improve reliability and to meet
NRC regulatory expectations in connection with Zion, Dresden and Quad-Cities
stations. In addition, generating station availability and performance during a
year may be issues in fuel reconciliation proceedings in assessing the prudence
of fuel and power purchases during such year. Final ICC orders have been issued
in fuel reconciliation proceedings for years prior to 1994; however, certain
intervenors have appealed the ICC order in the 1989 fuel reconciliation
proceedings on issues relating to nuclear station performance. See "Part II.
Other Information, Item 1. Legal Proceedings," subcaption "Nuclear Matters,"
for additional information.
ComEd estimates that it will expend approximately $15 billion, excluding any
contingency allowance, for decommissioning costs primarily during the period
from 2007 through 2032. Such costs, which are estimated to aggregate $3.5
billion in current-year (1995) dollars, are expected to be funded by external
decommissioning trusts which ComEd established in compliance with Illinois law
and into which ComEd has been making annual contributions. Future
decommissioning cost estimates may be significantly affected by the adoption of
or changes to NRC regulations. See "Depreciation and Decommissioning" in Note 1
of Notes to Financial Statements for additional information regarding
decommissioning costs.
Environmental Matters. ComEd is involved in administrative and legal
proceedings concerning air quality, water quality and other matters. The
outcome of these proceedings may require increases in future construction
expenditures and operating expenses and changes in operating procedures. See
Note 20 of Notes to Financial Statements and "Part II. Other Information, Item
1. Legal Proceedings," subcaption "Environmental Matters."
RESULTS OF OPERATIONS
Unicom's earnings (loss) per common share for the three months ended
September 30, 1995 were $1.90 compared to $1.23 for the three months ended
September 30, 1994, $2.82 for the nine months ended September 30, 1995 compared
to $1.29 for the nine months ended September 30, 1994, and $3.19 for the twelve
months ended September 30, 1995 compared to $(0.31) for the twelve months ended
September 30, 1994. Substantially all of the results of operations for Unicom
are the results of operations for ComEd. The results of Unicom's unregulated
subsidiaries are not material to the results of Unicom and subsidiary companies
as a whole. As such, the following section discusses the results of operations
for ComEd alone.
Net Income. The increases in ComEd's earnings in the recent three-month
period reflect significantly higher kilowatthour sales primarily due to an
unusually warm summer and, to a lesser extent, higher revenues as a result of
higher rate levels under the Rate Order. The increase in the recent three-month
period was partially offset by increased operation and maintenance expenses.
Earnings in the recent nine-month period reflect higher kilowatthour sales and
higher revenues as a result of higher rate levels under the Rate Order. The
increase in the recent nine-month period also reflects lower operation and
maintenance expenses. Operation and maintenance expenses for the nine months
ended September 30, 1994 include an after-tax charge for additional pension
costs related to the 1994 early retirement program of $20 million or $0.09 per
common share. ComEd also recorded a reduction in the carrying value of its
investments in uranium-related properties which reduced net income by $34
million or $0.16 per common share for the nine months ended September 30, 1994.
37
<PAGE>
The increase in ComEd's earnings for the recent twelve-month period was
significantly affected by the favorable comparison to the prior twelve-month
period in which the effects of the Rate Matters Settlement and Fuel Matters
Settlement were recorded. The net effects of the Rate Matters Settlement and
Fuel Matters Settlement reduced net income for the twelve months ended
September 30, 1994 by approximately $388 million or $1.82 per common share, in
addition to the effect of the deferred recognition of revenues which ComEd had
recorded during the twelve months ended September 30, 1994 (approximately $16
million or $0.08 per common share), and after the partially offsetting effect
of recording approximately $261 million or $1.22 per common share in deferred
carrying charges, net of income taxes and amortization, as authorized in the
Remand Order. The increase in the recent twelve-month period also includes
increased kilowatthour sales and lower operation and maintenance expenses.
Operation and maintenance expenses for the twelve months ended September 30,
1994 include an after-tax charge for additional pension costs related to the
1994 early retirement program of $20 million or $0.09 per common share. ComEd
also recorded a reduction in the carrying value of its investments in uranium-
related properties which reduced net income by $34 million or $0.16 per common
share for the twelve months ended September 30, 1994.
Kilowatthour Sales. Kilowatthour sales to ultimate consumers for the three
months, nine months and twelve months ended September 30, 1995 increased 15.3%,
5.0% and 4.6%, respectively, compared to the three months, nine months and
twelve months ended September 30, 1994. The increase in the recent three-month
period reflects significantly higher kilowatthour sales to all classes of
customers reflecting an unusually warm summer as compared to the same period in
the prior year. The increase in the recent nine-month and twelve-month periods
reflect higher kilowatthour sales to all classes of customers, except electric
railroads, which decreased, reflecting an unusually warm summer as compared to
the same periods in the prior year.
Kilowatthour sales for resale decreased for the three months ended September
30, 1995, compared to the three months ended September 30, 1994, and increased
for the nine months and twelve months ended September 30, 1995 compared to the
nine months and twelve months ended September 30, 1994. Total kilowatthour
sales, including sales for resale, increased 10.5%, 10.0% and 8.0% for the
three months, nine months and twelve months ended September 30, 1995,
respectively, compared to the three months, nine months and twelve months ended
September 30, 1994.
Operating Revenues. Operating revenues increased in the three months ended
September 30, 1995 compared to the three months ended September 30, 1994,
primarily as a result of significantly increased kilowatthour sales discussed
above and, to a lesser extent, higher rate levels under the Rate Order.
Operating revenues increased in the nine months ended September 30, 1995
compared to the nine months ended September 30, 1994 primarily as a result of
higher kilowatthour sales discussed above and higher rate levels under the Rate
Order. Operating revenues increased in the twelve months ended September 30,
1995 compared to the twelve months ended September 30, 1994, primarily as a
result of a favorable comparison to the prior twelve-month period, which
reflects the recording of the effects of the Rate Matters Settlement and Fuel
Matters Settlement, which reduced operating revenues by approximately $1,045
million and, to a lesser extent, the increased kilowatthour sales discussed
above and higher rate levels under the Rate Order.
38
<PAGE>
Fuel Costs. Changes in fuel expense for the three months, nine months and
twelve months ended September 30, 1995 as compared to the same periods ended
September 30, 1994 primarily resulted 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 NINE MONTHS ENDED TWELVE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30
-------------------- ------------------ --------------------
1994 1995 1994 1995 1994 1995
--------- --------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Cost of fuel consumed (per million Btu):
Nuclear..................................... $0.52 $0.52 $0.53 $0.52 $0.54 $0.52
Coal........................................ $2.33 $2.41 $2.35 $2.45 $2.40 $2.39
Oil......................................... $3.06 $3.13 $2.83 $3.09 $2.84 $3.12
Natural gas................................. $2.19 $1.75 $2.43 $1.78 $2.46 $1.80
Average all fuels........................... $1.05 $1.09 $1.11 $1.04 $1.15 $1.03
Net generation of electric energy (millions of
kilowatthours)............................... 25,279 27,401 67,792 75,576 90,221 98,027
Fuel sources of kilowatthour generation:
Nuclear..................................... 72% 70% 70% 73% 69% 73%
Coal........................................ 25 25 26 24 27 23
Oil......................................... 1 1 1 -- 1 1
Natural gas................................. 2 4 3 3 3 3
--------- --------- -------- -------- --------- ---------
100% 100% 100% 100% 100% 100%
========= ========= ======== ======== ========= =========
</TABLE>
Under the Energy Policy Act of 1992, investor-owned electric utilities that
have purchased enrichment services from the DOE are being assessed amounts to
fund a portion of the cost for the decontamination and decommissioning of
uranium enrichment facilities owned and previously operated by the DOE. ComEd's
portion of such assessments is estimated to be approximately $15 million per
year (to be adjusted annually for inflation) to 2007. The Act provides that
such assessments are to be treated as a cost of fuel. See Note 1 of Notes to
Financial Statements under "Deferred Unrecovered Energy Costs" for information
related to the accounting for such costs.
Fuel Supply. Compared to other utilities, ComEd has relatively low average
fuel costs. This results from ComEd's reliance predominantly on lower cost
nuclear generation. ComEd's coal costs, however, are high compared to those of
other utilities. ComEd'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 ComEd has
significant purchase commitments under its contracts. In addition, as of
September 30, 1995, ComEd had unrecovered fuel costs in the form of coal
reserves of approximately $465 million. In prior years, ComEd's commitments for
the purchase of coal exceeded its requirements. Rather than take all the coal
it was required to take, ComEd agreed to purchase the coal in place in the form
of coal reserves. For additional information concerning ComEd's coal purchase
commitments, fuel reconciliation proceedings and coal reserves, see "Liquidity
and Capital Resources" above and Notes 1, 2 and 20 of Notes to Financial
Statements.
Purchased Power. Amounts of purchased power are primarily affected by system
load, the availability of ComEd and the Indiana 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 NINE MONTHS ENDED TWELVE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30
------------- -------------------- ---------------------
1994 1995 1994 1995 1994 1995
------ ------ --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Kilowatthours
(millions)............. 315 453 1,937 901 2,124 1,035
Cost per kilowatthour... 3.69c 4.99c 2.91c 3.62c 2.83c 3.41c
</TABLE>
39
<PAGE>
Deferred Under or Overrecovered Energy Costs--Net. Operating expenses for the
three months, nine months and twelve months ended September 30, 1995 and 1994
reflect the net change in under or overrecovered allowable energy costs under
ComEd's fuel adjustment clause. See "Fuel Costs" and "Fuel Supply" above and
Note 1 of Notes to Financial Statements under "Deferred Unrecovered Energy
Costs."
Operation and Maintenance Expenses. ComEd's operation and maintenance
expenses increased 8.2% for the three months and decreased 3.2% and 5.2% for
the nine months and twelve months ended September 30, 1995, respectively,
compared to the same periods ended September 30, 1994. The increase in the
current three-month period primarily reflects increased operation and
maintenance expenses associated with nuclear and fossil generating stations,
certain administrative and general costs and pensions and certain other
employee benefits, including postretirement health care, partially offset by a
decrease in operation and maintenance expenses associated with transmission and
distribution facilities. The decrease in the current nine-month period
primarily reflects lower operation and maintenance expenses associated with
fossil generating stations, transmission and distribution facilities, certain
administrative and general costs, and pensions and certain other employee
benefits, including postretirement health care benefits. The decrease in the
current twelve-month period primarily reflects lower operation and maintenance
expenses associated with nuclear and fossil generating stations, transmission
and distribution facilities, certain administrative and general costs, and
pensions and certain other employee benefits, including postretirement health
care benefits, partially offset by an increase in costs associated with
employee incentive compensation. The effects of inflation are reflected in the
increases and decreases discussed below and have increased operation and
maintenance costs for the three months, nine months and twelve months ended
September 30, 1995.
Operation and maintenance expenses associated with the nuclear generating
stations increased $30 million for the three months ended September 30, 1995,
compared to the same period ended September 30, 1994. Operation and maintenance
expenses associated with the nuclear stations decreased $39 million for the
twelve months ended September 30, 1995, compared to the same period ended
September 30, 1994. The increase in operation and maintenance expenses for the
recent three-month period is primarily due to improvement and repair work
performed concurrently with a scheduled refueling outage at one of ComEd's
nuclear stations. The decrease for the current twelve-month period is primarily
due to activities undertaken during a lesser number of scheduled outages and by
cost containment efforts on non-outage related activities. Future operation and
maintenance expenses associated with nuclear generating stations may be
significantly affected by regulatory, operational and other requirements. See
"Nuclear Matters" under "Regulation" above.
Operation and maintenance expenses associated with the fossil generating
stations increased $3 million in the three months ended September 30, 1995 and
decreased $6 million and $14 million in the nine months and twelve months ended
September 30, 1995, respectively, compared to the same periods ended September
30, 1994. The increase in the recent three-month period reflects certain
severance plan costs, partially offset by a reduction of personnel. The
decreases in the recent nine-month and twelve-month periods reflect cost
containment efforts, a lesser number of scheduled overhauls than in the
corresponding prior periods ended September 30, 1994 and the net effect of a
reduction of personnel, partially offset by certain severance plan costs.
Operation and maintenance expenses associated with ComEd's transmission and
distribution system decreased $12 million, $14 million and $35 million in the
three months, nine months and twelve months ended September 30, 1995,
respectively, compared to the same periods ended September 30, 1994. The
decreases in the recent three-month, nine-month and twelve-month periods
primarily reflect the effects of ComEd's cost containment efforts and a
decrease in costs related to a system safety and reliability improvement
program.
40
<PAGE>
Operation and maintenance expenses in the twelve months ended September 30,
1995 reflect $50 million of employee incentive compensation recorded in
December 1994 related to the achievement of certain financial performance, cost
containment and operating performance goals in 1994. Operation and maintenance
expenses in the twelve months ended September 30, 1994 reflect $36 million of
special incentive compensation recorded in December 1993 to employees related
to a sharing of operation and maintenance savings below 1993 budgeted levels.
The costs of pensions and certain other employee benefits, including
postretirement health care benefits, increased $6 million in the three months
ended September 30, 1995 and decreased $22 million in the nine months and
twelve months ended September 30, 1995, compared to the same periods ended
September 30, 1994. The decreases in the nine months and twelve months ended
September 30, 1995 reflect costs of $32 million related to the 1994 early
retirement program recorded in the nine months and twelve months ended
September 30, 1994, partially offset by an increase in certain other employee
benefits of $10 million for the nine months and twelve months ended September
30, 1995. See Note 13 of Notes to Financial Statements for additional
information relating to the 1994 early retirement program.
Certain administrative and general costs increased $13 million for the three
months ended September 30, 1995 and decreased $9 million for the nine months
and twelve months ended September 30, 1995, compared to the same periods in
1994. The increase in the three months ended September 30, 1995 was due to a
variety of reasons including an increase in expenses for injuries and damages
and for outside services.
Depreciation. Depreciation expense for the three months, nine months and
twelve months ended September 30, 1995 increased over the same periods a year
ago as a result of additions to plant in service. See "Depreciation and
Decommissioning" in Note 1 of Notes to Financial Statements for additional
information.
Interest on Debt. Changes in interest on ComEd's long-term debt and notes
payable for the three months, nine months and twelve months ended September 30,
1995 compared to the same periods ended September 30, 1994 were due to changes
in average interest rates and in the amounts of long-term debt and notes
payable outstanding. Changes in interest on ComEd's long-term debt also
reflected new issues of debt and the retirement and redemption of issues which
were refinanced at generally lower rates of interest. The average amounts of
ComEd's long-term debt and notes payable outstanding and average interest rates
thereon were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED TWELVE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30
--------------------- --------------------- ---------------------
1994 1995 1994 1995 1994 1995
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Long-term debt outstand-
ing:
Average amount (mil-
lions)................ $7,888 $7,460 $7,953 $7,674 $7,948 $7,721
Average interest rate.. 7.83% 7.82% 7.84% 7.79% 7.85% 7.80%
Notes payable outstand-
ing:
Average amount (mil-
lions)................ $ 15 $ 136 $ 9 $ 52 $ 8 $ 41
Average interest rate.. 5.94% 6.11% 6.09% 6.34% 6.05% 6.41%
</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 under the Remand Order that the Units
were reflected in rates, could be deferred and amortized. Approximately $438
million of such costs was capitalized as a regulatory asset in October 1993 and
resulted in an increase to net income for the twelve months ended September 30,
1994 of approximately $261 million or $1.22 per common share, net of
amortization. Amortization of deferred carrying charges was approximately $3
million for the three months ended September 30, 1994 and 1995, $10 million for
the nine months ended September 30, 1994 and 1995, and $12 million and $13
million for the twelve months ended September 30, 1994 and 1995, respectively.
41
<PAGE>
Decommissioning. The staff of the SEC has questioned certain of the current
accounting practices of the electric utility industry, including ComEd,
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 FASB is reviewing the accounting
for nuclear decommissioning costs. If current electric utility industry
accounting practices for such decommissioning costs are changed: (1) annual
provisions for decommissioning could increase and (2) the estimated cost for
decommissioning could be recorded as a liability rather than as accumulated
depreciation. Unicom does not believe that such changes, if required, would
have an adverse effect on results of operations due to ComEd's current and
future ability to recover decommissioning costs through rates.
Investments in Uranium-Related Properties. In May 1994, ComEd 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 net income by $34 million or $0.16 per common share for the nine months
and twelve months ended September 30, 1994.
Other Items. The amounts of AFUDC reflect changes in the average levels of
investment subject to AFUDC and changes in the average annual capitalization
rates as discussed in Note 1 of Notes to Financial Statements. AFUDC does not
contribute to the current cash flow of Unicom or ComEd.
ComEd's ratios of earnings to fixed charges for the twelve months ended
December 31, 1994 and September 30, 1995 were 1.99 and 2.81, respectively.
ComEd's ratios of earnings to fixed charges and preferred and preference stock
dividend requirements for the twelve months ended December 31, 1994 and
September 30, 1995 were 1.73 and 2.42, respectively.
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 ComEd'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.
42
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
43
<PAGE>
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, 1994 and September 30,
1995, 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, nine-month and twelve-month periods ended September 30, 1994 and
1995. 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, 1994 and September 30, 1995, and
the results of their operations and their cash flows for the three-month, nine-
month and twelve-month periods ended September 30, 1994 and 1995, in conformity
with generally accepted accounting principles.
Arthur Andersen LLP
Chicago, Illinois
November 8, 1995
44
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED INCOME
The following Statements of Consolidated Income for the three months, nine
months and twelve months ended September 30, 1994 and 1995 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, competition, 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 NINE MONTHS ENDED TWELVE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30
---------------------- ---------------------- -----------------------
1994 1995 1994 1995 1994 1995
---------- ---------- ---------- ---------- ----------- ----------
(THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Electric Operating Reve-
nues:
Operating revenues..... $1,858,119 $2,190,879 $4,826,009 $5,328,525 $ 6,336,298 $6,795,947
Provisions for revenue
refunds............... (2,587) -- (13,561) 25 (1,049,790) (2,324)
---------- ---------- ---------- ---------- ----------- ----------
$1,855,532 $2,190,879 $4,812,448 $5,328,550 $ 5,286,508 $6,793,623
---------- ---------- ---------- ---------- ----------- ----------
Electric Operating
Expenses and Taxes:
Fuel................... $ 288,990 $ 322,990 $ 814,974 $ 850,422 $ 1,116,444 $1,085,300
Purchased power........ 11,633 22,623 56,466 32,609 60,011 35,267
Deferred
(under)/overrecovered
energy costs--net..... 9,508 (9,840) (11,451) (8,578) (3,624) 4,813
Operation.............. 354,477 382,811 1,146,247 1,135,575 1,536,222 1,514,586
Maintenance............ 122,481 133,312 458,125 418,235 610,600 521,430
Depreciation........... 221,961 224,824 665,807 674,620 883,016 896,245
Recovery of regulatory
assets................ 3,818 3,818 11,635 11,454 14,574 15,272
Taxes (except income).. 210,880 239,904 599,239 639,289 727,167 827,846
Income taxes--
Current--Federal..... 82,725 145,136 139,192 248,033 (70,978) 267,143
--State.............. (846) 51,877 979 79,984 (55,067) 80,918
Deferred--Federal--
net................. 78,802 94,262 64,178 133,663 113,278 173,775
--State--net......... 36,010 2,520 47,634 10,581 72,314 27,963
Investment tax credits
deferred--net......... (7,195) (7,177) (21,620) (21,535) (29,142) (28,672)
---------- ---------- ---------- ---------- ----------- ----------
$1,413,244 $1,607,060 $3,971,405 $4,204,352 $ 4,974,815 $5,421,886
---------- ---------- ---------- ---------- ----------- ----------
Electric Operating In-
come................... $ 442,288 $ 583,819 $ 841,043 $1,124,198 $ 311,693 $1,371,737
---------- ---------- ---------- ---------- ----------- ----------
Other Income and (Deduc-
tions):
Interest on long-term
debt.................. $ (154,420) $ (145,783) $ (467,413) $ (448,548) $ (623,525) $ (602,359)
Interest on notes
payable............... (226) (2,101) (415) (2,473) (502) (2,616)
Allowance for funds
used during construc-
tion--
Borrowed funds....... 4,336 2,674 14,831 7,551 20,038 11,631
Equity funds......... 5,215 2,834 17,641 8,703 24,189 13,690
Income taxes
applicable to
nonoperating
activities............ 3,050 1,989 23,620 2,458 35,409 5,911
Deferred carrying
charges............... -- -- -- -- 438,183 --
Interest and other
costs for 1993
Settlements........... (3,368) -- (21,261) (61) (119,935) (264)
Provision for
dividends on company-
obligated mandatorily
redeemable preferred
securities of ComEd
Financing I........... -- (188) -- (188) -- (188)
Miscellaneous--net..... (13,267) (16,893) (80,729) (30,866) (85,222) (40,139)
---------- ---------- ---------- ---------- ----------- ----------
$ (158,680) $ (157,468) $ (513,726) $ (463,424) $ (311,365) $ (614,334)
---------- ---------- ---------- ---------- ----------- ----------
Net Income.............. $ 283,608 $ 426,351 $ 327,317 $ 660,774 $ 328 $ 757,403
Provision for Dividends
on Preferred and
Preference Stocks...... 16,966 16,674 47,994 50,447 63,801 67,380
---------- ---------- ---------- ---------- ----------- ----------
Net Income (Loss) on
Common Stock........... $ 266,642 $ 409,677 $ 279,323 $ 610,327 $ (63,473) $ 690,023
========== ========== ========== ========== =========== ==========
Average Number of Common
Shares Outstanding..... 214,138 214,193 213,947 214,192 213,880 214,192
Earnings (Loss) per
Common Share.............. $1.25 $1.91 $1.31 $2.85 $(0.30) $3.22
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
45
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
ASSETS 1994 1995
------ ------------ -------------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Utility Plant:
Plant and equipment, at original cost (includes
construction work in progress of $1,043 million
and $1,029 million, respectively)................ $26,257,665 $26,759,559
Less--Accumulated provision for depreciation...... 9,623,756 10,358,526
----------- -----------
$16,633,909 $16,401,033
Nuclear fuel, at amortized cost................... 689,424 662,069
----------- -----------
$17,323,333 $17,063,102
----------- -----------
Investments:
Nuclear decommissioning funds..................... $ 880,944 $ 1,145,850
Subsidiary companies.............................. 118,051 113,142
Other investments, at cost........................ 18,613 22,544
----------- -----------
$ 1,017,608 $ 1,281,536
----------- -----------
Current Assets:
Cash.............................................. $ 84 $ --
Temporary cash investments........................ 53,566 583,828
Other cash investments............................ 19,588 1,978
Special deposits.................................. 29,603 897
Receivables--
Customers....................................... 463,385 659,367
Taxes........................................... 36,083 164
Other........................................... 68,434 47,954
Provisions for uncollectible accounts........... (10,720) (11,404)
Coal and fuel oil, at average cost................ 108,872 101,567
Materials and supplies, at average cost........... 384,612 362,626
Deferred unrecovered energy costs................. 48,697 51,486
Deferred income taxes related to current assets
and liabilities--
Loss carryforward............................... 10,090 --
Other........................................... 110,267 121,140
Prepayments and other............................. 56,449 32,513
----------- -----------
$ 1,379,010 $ 1,952,116
----------- -----------
Deferred Charges and Other Noncurrent Assets:
Regulatory assets................................. $ 2,604,270 $ 2,497,400
Unrecovered energy costs.......................... 643,438 604,415
Other............................................. 108,308 62,591
----------- -----------
$ 3,356,016 $ 3,164,406
----------- -----------
$23,075,967 $23,461,160
=========== ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
46
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER
DECEMBER 31, 30,
CAPITALIZATION AND LIABILITIES 1994 1995
------------------------------ ------------ -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Capitalization (see accompanying statements):
Common stock equity................................. $ 5,401,423 $ 5,751,920
Preferred and preference stocks without mandatory
redemption requirements............................ 508,147 508,058
Preference stock subject to mandatory redemption re-
quirements......................................... 292,163 265,047
Company-obligated mandatorily redeemable preferred
securities of ComEd Financing I*................... -- 200,000
Long-term debt...................................... 7,453,206 6,584,470
----------- -----------
$13,654,939 $13,309,495
----------- -----------
Current Liabilities:
Notes payable--bank loans........................... $ 7,150 $ 7,150
Current portion of long-term debt, redeemable pref-
erence stock and capitalized lease obligations..... 560,335 992,018
Accounts payable.................................... 351,370 323,427
Accrued interest.................................... 182,745 160,357
Accrued taxes....................................... 209,269 377,854
Dividends payable................................... 102,585 102,265
Customer deposits................................... 44,514 44,665
Other............................................... 85,845 103,434
----------- -----------
$ 1,543,813 $ 2,111,170
----------- -----------
Deferred Credits and Other Noncurrent Liabilities:
Deferred income taxes............................... $ 4,383,876 $ 4,492,525
Accumulated deferred investment tax credits......... 717,752 696,216
Accrued spent nuclear fuel disposal fee and related
interest........................................... 589,757 615,721
Obligations under capital leases.................... 431,402 405,786
Regulatory liabilities.............................. 699,426 606,299
Other............................................... 1,055,002 1,223,948
----------- -----------
$ 7,877,215 $ 8,040,495
----------- -----------
Commitments and Contingent Liabilities (Note 20)
$23,075,967 $23,461,160
=========== ===========
</TABLE>
*As described in Note 8 of Notes to Financial Statements, the sole asset of
ComEd Financing I is $206.2 million principal amount of 8.48% subordinated
deferrable interest notes due September 30, 2035 of ComEd.
The accompanying Notes to Financial Statements are an integral part of the
above statements.
47
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED CAPITALIZATION
<TABLE>
<CAPTION>
SEPTEMBER
DECEMBER 31, 30,
1994 1995
------------ -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Common Stock Equity:
Common stock, $12.50 par value per share--
Outstanding--214,191,021 shares and 214,194,136
shares, respectively............................. $ 2,677,387 $ 2,677,427
Premium on common stock and other paid-in capital.. 2,222,941 2,222,991
Capital stock and warrant expense.................. (16,240) (16,176)
Retained earnings.................................. 517,335 867,678
----------- -----------
$ 5,401,423 $ 5,751,920
----------- -----------
Preferred and Preference Stocks Without Mandatory
Redemption Requirements:
Preference stock, cumulative, without par value--
Outstanding--13,499,549 shares ................... $ 504,957 $ 504,957
$1.425 convertible preferred stock, cumulative,
without par value--
Outstanding--100,323 shares and 97,499 shares, re-
spectively....................................... 3,190 3,101
Prior preferred stock, cumulative, $100 par value
per share--
No shares outstanding............................. -- --
----------- -----------
$ 508,147 $ 508,058
----------- -----------
Preference Stock Subject to Mandatory Redemption
Requirements:
Preference stock, cumulative, without par value--
Outstanding--3,113,205 shares and 2,970,705
shares, respectively............................. $ 309,964 $ 295,734
Current redemption requirements for preference
stock included in current liabilities............. (17,801) (30,687)
----------- -----------
$ 292,163 $ 265,047
----------- -----------
Company-Obligated Mandatorily Redeemable Preferred
Securities of ComEd Financing I:
Outstanding--None and 8,000,000, respectively...... $ -- $ 200,000
----------- -----------
Long-Term Debt:
First mortgage bonds:
Maturing 1995 through 1999--5 1/4% to 7%......... $ 818,000 $ 715,000
Maturing 2000 through 2009--5.30% to 9 3/8%...... 2,220,500 2,220,400
Maturing 2010 through 2019--5.85% to 9 5/8%...... 1,106,000 1,106,000
Maturing 2020 through 2023--7 3/4% to 9 7/8%..... 1,870,000 1,870,000
----------- -----------
$ 6,014,500 $ 5,911,400
Sinking fund debentures, due 1999 through 2011--
2 3/4% to 7 5/8%.................................. 112,593 110,527
Pollution control obligations, due 2004 through
2014--4.20% to 9 1/8%............................. 337,200 337,200
Other long-term debt............................... 1,451,449 1,064,409
Current maturities of long-term debt included in
current liabilities............................... (395,554) (776,100)
Unamortized net debt discount and premium.......... (66,982) (62,966)
----------- -----------
$ 7,453,206 $ 6,584,470
----------- -----------
$13,654,939 $13,309,495
=========== ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
48
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED RETAINED EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED TWELVE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30
------------------- ------------------- -------------------
1994 1995 1994 1995 1994 1995
--------- --------- -------- ---------- -------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Balance at Beginning of
Period................. $ 340,691 $ 546,624 $549,152 $ 517,335 $977,682 $ 523,307
Add--Net income......... 283,608 426,351 327,317 660,774 328 757,403
--------- --------- -------- ---------- -------- ----------
$ 624,299 $ 972,975 $876,469 $1,178,109 $978,010 $1,280,710
--------- --------- -------- ---------- -------- ----------
Deduct--
Dividends declared
on--
Common stock........ $ 83,459 $ 85,678 $304,605 $ 257,032 $390,106 $ 342,708
Preferred and pref-
erence stocks...... 17,477 16,589 48,474 50,341 64,019 67,249
Other capital stock
transactions--net... 56 3,030 83 3,058 578 3,075
--------- --------- -------- ---------- -------- ----------
$ 100,992 $ 105,297 $353,162 $ 310,431 $454,703 $ 413,032
--------- --------- -------- ---------- -------- ----------
Balance at End of Peri-
od..................... $ 523,307 $ 867,678 $523,307 $ 867,678 $523,307 $ 867,678
========= ========= ======== ========== ======== ==========
</TABLE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED PREMIUM ON COMMON STOCK
AND OTHER PAID-IN CAPITAL
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED TWELVE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30
--------------------- --------------------- ---------------------
1994 1995 1994 1995 1994 1995
---------- ---------- ---------- ---------- ---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Balance at Beginning of
Period................. $2,221,060 $2,222,961 $2,217,110 $2,222,941 $2,214,444 $2,222,902
Add--Premium on issuance
of common stock........ 1,842 30 5,792 50 8,458 89
---------- ---------- ---------- ---------- ---------- ----------
Balance at End of Peri-
od..................... $2,222,902 $2,222,991 $2,222,902 $2,222,991 $2,222,902 $2,222,991
========== ========== ========== ========== ========== ==========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
49
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED TWELVE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30
-------------------- ----------------------- ------------------------
1994 1995 1994 1995 1994 1995
--------- --------- ----------- ---------- ----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Cash Flow from Operating
Activities:
Net income............. $ 283,608 $ 426,351 $ 327,317 $ 660,774 $ 328 $ 757,403
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Depreciation and am-
ortization.......... 234,123 237,177 697,781 713,905 927,353 945,449
Deferred income taxes
and investment tax
credits--net........ 109,893 90,283 73,426 124,727 144,788 178,487
Equity component of
allowance for funds
used during
construction........ (5,215) (2,834) (17,641) (8,703) (24,189) (13,690)
Provisions for
revenue refunds and
related interest.... 5,988 -- 34,978 (231) 1,138,295 2,339
Revenue refunds and
related interest.... (409,541) -- (1,083,109) 15,135 (1,270,214) (123,407)
Recovery/(deferral)
of regulatory
assets/deferred
carrying charges--
net................. 3,818 3,818 11,635 11,454 (423,609) 15,272
Provisions/(payments)
for liability for
early retirement and
separation costs--
net................. 1,425 1,980 32,962 2,540 33,143 3,158
Net effect on cash
flows of changes in:
Receivables........ (47,895) (132,760) 139,435 (138,899) 159,846 (163,399)
Coal and fuel oil.. 26,236 31,731 6,961 7,305 55,093 3,224
Materials and
supplies.......... 8,618 3,904 8,794 21,986 15,199 31,294
Accounts payable
adjusted for
nuclear fuel lease
principal payments
and early
retirement and
separation costs--
net............... 20,170 70,962 36,099 152,181 247,662 234,272
Accrued interest
and taxes......... (67,575) 56,685 (25,731) 146,197 (116,140) 244,755
Other changes in
certain current
assets and
liabilities....... (15,746) 35,653 (50,521) 45,243 (50,283) 41,712
Other--net........... 59,767 46,813 191,259 181,883 156,118 116,060
--------- --------- ----------- ---------- ----------- -----------
$ 207,674 $ 869,763 $ 383,645 $1,935,497 $ 993,390 $ 2,272,929
--------- --------- ----------- ---------- ----------- -----------
Cash Flow from Investing
Activities:
Construction expendi-
tures................. $(177,250) $(190,536) $ (555,841) $ (570,502) $ (816,266) $ (735,263)
Nuclear fuel expendi-
tures................. (65,696) (52,842) (170,995) (163,996) (241,389) (250,266)
Equity component of
allowance for funds
used during
construction.......... 5,215 2,834 17,641 8,703 24,189 13,690
Contributions to nu-
clear decommissioning
funds................. -- -- (96,229) (96,229) (132,550) (132,550)
Investment in subsidi-
ary companies......... -- -- -- (1) -- (50)
Other cash investments
and special deposits.. 7,855 18,189 628,387 17,610 38,971 11,210
--------- --------- ----------- ---------- ----------- -----------
$(229,876) $(222,355) $ (177,037) $ (804,415) $(1,127,045) $(1,093,229)
--------- --------- ----------- ---------- ----------- -----------
Cash Flow from Financing
Activities:
Issuance of securi-
ties--
Long-term debt........ $ 87,699 $ -- $ 364,813 $ -- $ 597,485 $ 181,476
Preferred securities
of ComEd Financing I. -- 200,000 -- 200,000 -- 200,000
Capital stock......... 72,703 -- 77,734 -- 82,431 235
Retirement and redemp-
tion of securities--
Long-term debt........ (145,850) (200,498) (501,602) (492,161) (512,764) (694,489)
Capital stock......... (11,250) (11,250) (14,137) (14,250) (46,281) (17,822)
Deposits and securi-
ties held for retire-
ment and redemption
of securities......... (2) 377 3,192 106 35,546 104
Premium paid on early
redemption of long-
term debt............. -- -- (900) -- (900) (3,664)
Cash dividends paid on
capital stock......... (141,575) (102,522) (343,684) (307,691) (445,442) (410,349)
Proceeds from
sale/leaseback of
nuclear fuel.......... 39,443 77,876 207,463 193,216 248,994 292,401
Nuclear fuel lease
principal payments.... (53,510) (64,507) (153,046) (180,124) (209,653) (236,767)
Increase (Decrease) in
short-term
borrowings............ 1,050 (40,000) 1,200 -- 1,200 --
--------- --------- ----------- ---------- ----------- -----------
$(151,292) $(140,524) $ (358,967) $ (600,904) $ (249,384) $ (688,875)
--------- --------- ----------- ---------- ----------- -----------
Increase (Decrease) in
Cash and Temporary Cash
Investments............ $(173,494) $ 506,884 $ (152,359) $ 530,178 $ (383,039) $ 490,825
Cash and Temporary Cash
Investments at
Beginning of Period.... 266,497 76,944 245,362 53,650 476,042 93,003
--------- --------- ----------- ---------- ----------- -----------
Cash and Temporary Cash
Investments at End of
Period................. $ 93,003 $ 583,828 $ 93,003 $ 583,828 $ 93,003 $ 583,828
========= ========= =========== ========== =========== ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
50
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
See Unicom's Note 1 of Notes to Financial Statements for a discussion of
significant accounting policies, except for the following specific policies
discussed below.
Holding Company Restructuring. Effective September 1, 1994, Unicom became the
parent corporation of ComEd and Unicom Enterprises in a corporate restructuring.
Previously, Unicom Enterprises was a wholly-owned subsidiary of ComEd. The
restructuring was accounted for by the pooling-of-interests method. In the
restructuring, each of the 214,185,572 outstanding shares of ComEd common stock,
par value $12.50 per share, was converted into one fully paid and non-assessable
share of Unicom common stock, without par value. In addition, the outstanding
shares of the common stock of CECo Merging Corporation (a wholly-owned
subsidiary of ComEd created to effect the restructuring) were converted into the
same number of shares of ComEd common stock, par value $12.50 per share,
outstanding immediately prior to the restructuring. The preferred and preference
stocks, common stock purchase warrants, first mortgage bonds and other debt
obligations of ComEd and the Indiana Company were unchanged in the restructuring
and remain their outstanding securities and obligations.
Income Taxes. ComEd is included in the consolidated federal and state income
tax returns filed by Unicom. Current and deferred income taxes of the
consolidated group are allocated to ComEd as if ComEd filed separate tax
returns. 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.
Interest. Total interest costs incurred on debt, leases and other obligations
for the three months ended September 30, 1994 and 1995 were $179,125,000 and
$178,041,000, respectively, for the nine months ended September 30, 1994 and
1995 were $552,802,000 and $530,933,000, respectively, and for the twelve
months ended September 30, 1994 and 1995 were $791,929,000 and $707,841,000,
respectively.
Statements of Consolidated Cash Flows. For purposes of the Statements of
Consolidated Cash Flows, temporary cash investments, generally investments
maturing within three months at the time of purchase, are considered to be cash
equivalents. Supplemental cash flow information for the three months, nine
months and twelve months ended September 30, 1994 and 1995 was as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED TWELVE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30
------------------- ----------------- -------------------
1994 1995 1994 1995 1994 1995
--------- --------- -------- -------- --------- ---------
(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). $ 174,281 $ 152,404 $494,165 $468,670 $ 631,608 $ 619,928
Income taxes (net of
refunds)............ $ 92,467 $ 88,623 $ 14,876 $111,115 $ 10,628 $ 91,317
Supplemental Schedule of
Non-Cash Investing and
Financing Activities:
Capital lease obliga-
tions incurred........ $ 40,089 $ 78,772 $209,958 $197,015 $ 252,130 $ 296,773
</TABLE>
(2) SETTLEMENTS RELATING TO CERTAIN RATE MATTERS. See Unicom's Note 2 of
Notes to Financial Statements.
(3) OTHER RATE MATTERS. See Unicom's Note 3 of Notes to Financial Statements.
51
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(4) AUTHORIZED SHARES AND VOTING RIGHTS OF CAPITAL STOCK. At September 30,
1995, the authorized shares of capital stock were: common stock--250,000,000
shares; preference stock--23,280,705 shares; $1.425 convertible preferred
stock--97,499 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.
(5) COMMON STOCK. At September 30, 1995, shares of common stock were reserved
for the following purposes:
<TABLE>
<S> <C>
Conversion of $1.425 convertible preferred stock.................. 99,448
Conversion of warrants............................................ 27,644
-------
127,092
=======
</TABLE>
During the three months, nine months and twelve months ended September 30,
1994 and 1995, shares of common stock were issued as follows:
<TABLE>
<CAPTION>
NINE MONTHS
THREE MONTHS ENDED ENDED TWELVE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30
------------------ ------------- --------------------
1994 1995 1994 1995 1994 1995
---------- ------- ------- ----- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Employee Stock Purchase
Plan.................... -- -- 154,710 -- 284,656 --
Employee Savings and In-
vestment Plan........... 15,800 -- 81,400 -- 122,400 --
Conversion of $1.425 con-
vertible preferred
stock................... 94,611 1,642 187,717 2,873 193,724 5,206
Conversion of warrants... 7,669 26 13,421 242 13,852 535
---------- -------- ------- ----- ---------- --------
118,080 1,668 437,248 3,115 614,632 5,741
========== ======== ======= ===== ========== ========
</TABLE>
At December 31, 1994 and September 30, 1995, 83,751 and 82,932 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. See Unicom's Note 6 of Notes to Financial Statements.
(7) PREFERENCE STOCK SUBJECT TO MANDATORY REDEMPTION REQUIREMENTS. See
Unicom's Note 7 of Notes to Financial Statements.
(8) COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF COMED
FINANCING I. See Unicom's Note 8 of Notes to Financial Statements.
(9) LONG-TERM DEBT. See Unicom's Note 9 of Notes to Financial Statements for
ComEd and the Indiana Company's long-term debt.
(10) LINES OF CREDIT. See the first paragraph of Unicom's Note 10 of Notes to
Financial Statements.
(11) DISPOSAL OF SPENT NUCLEAR FUEL. See Unicom's Note 11 of Notes to
Financial Statements.
(12) FAIR VALUE OF FINANCIAL INSTRUMENTS. See Unicom's Note 12 of Notes to
Financial Statements.
52
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(13) PENSION BENEFITS. See Unicom's Note 13 of Notes to Financial Statements.
(14) POSTRETIREMENT HEALTH CARE BENEFITS. See Unicom's Note 14 of Notes to
Financial Statements.
(15) INCOME TAXES. The components of the net deferred income tax liability at
December 31, 1994 and September 30, 1995 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1994 1995
------------ -------------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Deferred income tax liabilities:
Accelerated cost recovery and liberalized deprecia-
tion, net of removal costs........................ $3,266,930 $3,355,361
Overheads capitalized.............................. 266,159 255,401
Repair allowance................................... 210,655 203,173
Regulatory assets recoverable through future rates. 1,791,395 1,708,485
Deferred income tax assets:
Postretirement benefits............................ (177,991) (204,766)
Unbilled revenues.................................. (90,396) (105,136)
Loss carryforward.................................. (10,090) --
Alternative minimum tax............................ (283,331) (168,351)
Unamortized investment tax credits to be settled
through future rates.............................. (471,058) (456,919)
Other regulatory liabilities to be settled through
future rates...................................... (179,755) (149,380)
Other--net......................................... (58,999) (66,483)
---------- ----------
Net deferred income tax liability................... $4,263,519 $4,371,385
========== ==========
</TABLE>
The $108 million increase in the net deferred income tax liability from
December 31, 1994 to September 30, 1995 is comprised of $146 million of
deferred income tax expense and a $38 million decrease in regulatory assets net
of regulatory liabilities pertaining to income taxes for the period. The amount
of regulatory assets included in deferred income tax liabilities primarily
relates to the equity component of AFUDC which is 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. The amount of other regulatory liabilities included in
deferred income tax assets primarily relates to deferred income taxes provided
at rates in excess of the current statutory rate.
The components of net income tax expense charged to continuing operations for
the three months, nine months and twelve months ended September 30, 1994 and
1995 were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED TWELVE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30
-------------------- ------------------ ---------------------
1994 1995 1994 1995 1994 1995
--------- --------- -------- -------- ---------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Electric operating in-
come:
Current income taxes... $ 81,879 $ 197,013 $140,171 $328,017 $ (126,045) $ 348,061
Deferred income taxes.. 114,812 96,782 111,812 144,244 185,592 201,738
Investment tax credits
deferred--net......... (7,195) (7,177) (21,620) (21,535) (29,142) (28,672)
Other (income) and de-
ductions............... 1,697 (5,344) (19,569) (5,870) (33,287) (9,362)
--------- --------- -------- -------- ---------- ---------
Net income taxes charged
to continuing opera-
tions.................. $ 191,193 $ 281,274 $210,794 $444,856 $ (2,882) $ 511,765
========= ========= ======== ======== ========== =========
</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, nine months and twelve months ended
September 30, 1994 and 1995:
<TABLE>
<CAPTION>
TWELVE
THREE MONTHS ENDED NINE MONTHS ENDED MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30
-------------------- -------------------- -------------------
1994 1995 1994 1995 1994 1995
--------- --------- -------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Pre-tax book income
(thousands)............ $474,801 $707,625 $538,111 $1,105,630 $(2,554) $1,269,168
Effective income tax
rate................... 40.3% 39.7% 39.2% 40.2% 112.8% 40.3%
</TABLE>
53
<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 35% for
the three months, nine months and twelve months ended September 30, 1994 and
1995 were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED TWELVE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30
-------------------- ------------------ --------------------
1994 1995 1994 1995 1994 1995
--------- --------- -------- -------- --------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Federal income taxes
computed at statutory
rate................... $ 166,180 $247,669 $188,339 $386,971 $ (894) $ 444,209
Equity component of
AFUDC which was
excluded from taxable
income................. (1,825) (992) (6,174) (3,046) (8,466) (4,792)
Amortization of invest-
ment tax credits....... (7,190) (7,177) (21,602) (21,535) (29,109) (28,744)
State income taxes, net
of federal income tax-
es..................... 22,670 35,228 28,399 58,513 6,236 70,253
Differences between book
and tax accounting,
primarily property-re-
lated deductions....... 7,553 5,435 15,481 21,213 22,724 27,905
Other--net.............. 3,805 1,111 6,351 2,740 6,627 2,934
--------- --------- -------- -------- --------- ---------
Net income taxes charged
to continuing opera-
tions.................. $ 191,193 $ 281,274 $210,794 $444,856 $ (2,882) $ 511,765
========= ========= ======== ======== ========= =========
</TABLE>
Current federal income tax liabilities which were recorded prior to 1995
included excess amounts of AMT over the regular federal income tax, which
amounts were also recorded as decreases to deferred federal income taxes. The
excess amounts of AMT were carried forward and a portion has been applied as a
credit against the 1995 regular federal income tax liability. The excess
amounts of AMT can be carried forward indefinitely as a credit against future
years' regular federal income tax liabilities.
(16) TAXES, EXCEPT INCOME TAXES. Provisions for taxes, except income taxes,
for the three months, nine months and twelve months ended September 30, 1994
and 1995 were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED TWELVE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30
------------------- ----------------- -------------------
1994 1995 1994 1995 1994 1995
--------- --------- -------- -------- --------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Illinois public utility
revenue................ $ 57,686 $ 67,421 $157,475 $175,362 $ 193,650 $ 229,150
Illinois invested capi-
tal.................... 27,559 27,980 82,047 82,090 109,378 109,416
Municipal utility gross
receipts............... 42,743 53,648 111,237 128,554 119,267 162,328
Real estate............. 44,084 45,868 135,106 132,821 174,628 177,936
Municipal compensation.. 21,222 24,449 55,831 59,876 59,043 76,691
Other--net.............. 17,586 20,538 57,543 60,586 71,201 72,325
--------- --------- -------- -------- --------- ---------
$ 210,880 $ 239,904 $599,239 $639,289 $ 727,167 $ 827,846
========= ========= ======== ======== ========= =========
</TABLE>
(17) LEASE OBLIGATIONS. Under its nuclear fuel lease arrangement, ComEd 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. With
respect to the commercial paper/bank borrowing portion, $20 million currently
will expire on November 23, 1996 and $280 million will expire on November 23,
1997. ComEd has asked for an extension of the expiration dates. At September
30, 1995, ComEd's obligation to the lessor for leased nuclear fuel amounted to
approximately $634 million. ComEd has agreed to make lease payments which cover
the amortization of the nuclear fuel used in ComEd's reactors plus the lessor's
related financing costs. ComEd has an obligation for spent nuclear fuel
disposal costs of leased nuclear fuel.
Future minimum rental payments, net of executory costs, at September 30, 1995
for capital leases are estimated to aggregate $712 million, including $65
million in 1995, $253 million in 1996, $155 million in 1997, $103 million in
1998, $67 million in 1999 and $69 million in 2000-2003. The estimated interest
component of such rental payments aggregates $79 million. The estimated
portions of obligations due within one year under capital leases are included
in current liabilities and approximated $147 million and $185 million at
December 31, 1994 and September 30, 1995, respectively.
54
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONCLUDED
Future minimum rental payments at September 30, 1995 for operating leases are
estimated to aggregate $142 million, including $1 million in 1995, $9 million
in 1996, $9 million in 1997, $9 million in 1998, $9 million in 1999 and $105
million in 2000-2024.
(18) INVESTMENTS IN URANIUM-RELATED PROPERTIES. See Unicom's Note 18 of Notes
to Financial Statements.
(19) JOINT PLANT OWNERSHIP. See Unicom's Note 19 of Notes to Financial
Statements.
(20) COMMITMENTS AND CONTINGENT LIABILITIES. See Unicom's Note 20 of Notes to
Financial Statements.
(21) SUBSEQUENT EVENTS. See Unicom's Note 21 of Notes to Financial
Statements.
55
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES. See Unicom's "Management's Discussion and
Analysis of Financial Condition and Results of Operations," subcaptions
"Liquidity and Capital Resources--UTILITY OPERATIONS" and "Regulation," which
are incorporated herein by this reference.
RESULTS OF OPERATIONS. See Unicom's "Management's Discussion and Analysis of
Financial Condition and Results of Operations," subcaption "Results of
Operations" (other than the first paragraph thereof), which is incorporated
herein by this reference.
56
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
CERTAIN REGULATORY MATTERS. Through its fuel adjustment clause, ComEd
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 ComEd's fuel reconciliation proceedings and
coal reserves, see Notes 1 and 2 of Unicom and ComEd's Notes to Financial
Statements.
LITIGATION. During 1989 and 1991, actions were brought in federal and state
courts in Colorado against ComEd and Cotter seeking unspecified damages and
injunctive relief based on allegations 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. In February 1994, a federal jury returned nominal dollar
verdicts on eight bellwether plaintiffs' claims in these cases. Plaintiffs have
appealed those judgments. Although the remaining cases will necessarily involve
the resolution of numerous contested issues of fact and law, Unicom and ComEd's
determination is that these actions will not have a material impact on their
financial position or results of operations.
In 1990, ComEd filed a complaint in the Circuit Court against 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
ComEd's 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 ComEd which seeks recovery of Westinghouse's costs of
defense and damages of approximately $13 million.
Shareholder derivative lawsuits were filed in 1992 and 1993 in the Circuit
Court against current and former directors of ComEd alleging that they breached
their fiduciary duty and duty of care to ComEd in connection with the
management of the activities associated with the construction of ComEd's four
most recently completed nuclear generating units. The lawsuits sought
restitution to ComEd by the defendants for unquantified and undefined losses
and costs alleged to have been incurred by ComEd. Both lawsuits were dismissed
by the Circuit Court and that dismissal was affirmed by the Illinois Appellate
Court. Plaintiffs have indicated that they may appeal.
A number of complaints have been filed by former employees with the EEOC, and
several lawsuits have been filed by former employees in the U.S. District
Court, alleging that the employees' terminations (which occurred as part of
ComEd's management workforce reductions that were implemented in 1992) involved
discrimination on the basis of age, race, sex, national origin and/or
disabilities, in violation of applicable law. 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. Discovery in
these cases is proceeding, and ComEd does not view these cases as having a
material impact on its financial position or results of operations.
In July 1995, the Chicago area experienced several consecutive days of
unusually high temperatures coupled with high humidity. Between July 12 and 14,
1995, ComEd experienced record demand for electricity. On July 14, 1995, a fire
in a substation caused a power outage to approximately 40,000 customers. Other
equipment failures in the same general area caused certain of these customers
to be without power for up to 48 hours. In the wake of these power outages,
three class action lawsuits
57
<PAGE>
were filed against ComEd seeking recovery of damages for property losses
allegedly suffered. One suit seeks at least $10 million in damages; the others
seek unspecified damages.
ComEd has been engaged in collective bargaining agreement negotiations with
its and the Indiana Company's unions to replace the existing agreements with
those unions which had an original term ending on March 31, 1995. On October
30, 1995, however, ComEd declared that an impasse had been reached in the
negotiations with Local 15 of the International Brotherhood of Electrical
Workers, which represents approximately 10,500 of ComEd's employees, and
proceeded to implement virtually all of the terms of its last offered proposal.
The union has filed an unfair labor practice charge with the National Labor
Relations Board against ComEd alleging, among other things, that ComEd did not
negotiate in good faith, that no impasse existed and that the implementation
was unlawful. See "Financial Condition" under the subcaption "Liquidity and
Capital Resources" in "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
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. ComEd, 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 ComEd's
nuclear generating stations beginning not later than January 1998; however,
this delivery schedule is expected to be delayed significantly. It is not
certain when the DOE will accept high-level radioactive waste from ComEd and
other operators of nuclear power plants. Significant legislation, in both the
House of Representatives and the Senate, would fundamentally change the
nation's spent fuel management program by creating a federal interim storage
facility which could begin accepting spent nuclear fuel as early as 1998.
Delivery to the interim facility could be accomplished using existing
technology. Extended delays in spent nuclear fuel acceptance by the DOE would
lead to ComEd's consideration of costly storage alternatives. The contract with
the DOE requires ComEd 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. As
provided for under the contract, ComEd has elected to pay the one-time fee,
with interest, just prior to the first delivery of spent nuclear fuel to the
DOE. 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. ComEd has primary responsibility for the interim storage of
its spent nuclear fuel. ComEd's capability to store spent fuel is more than
adequate for some years to come. Dresden station has spent fuel capacity
through the year 2001, Zion station has capacity through 2005 and all of the
other stations have capacity through at least 2009. In addition, ComEd is
developing on site dry cask spent fuel storage for Dresden Unit 1 at a budgeted
cost of $21 million. The Dresden Unit 1 facility will use existing technology
procured to meet the federal requirements for both storage and transportation
of spent nuclear fuel. Meeting other spent fuel storage requirements beyond the
years stated above could require new and separate storage facilities. The costs
for ComEd's other nuclear units have not been determined.
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 and restrict use of such facilities to waste
generated within the region. Between July 1, 1994 and July 1, 1995, there were
no commercial operating sites in the United States for the disposal of low-
level radioactive waste available to ComEd. However, the Barnwell, South
Carolina low-level radioactive waste site was reopened on July 1, 1995 and is
available to ComEd. ComEd has entered into an agreement with the Barnwell site
operator and began shipping waste to Barnwell on August 17, 1995. Illinois has
entered into a compact with the state of Kentucky, which has been approved by
Congress as required by the Waste Policy Act. Neither Illinois nor Kentucky
currently has an operational site, and one is currently not expected to be
operational until after the year 2000. ComEd 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. ComEd anticipates the
58
<PAGE>
possibility of continuing difficulties in disposing of low-level radioactive
waste. Since the reopening and availability of the Barnwell site, ComEd
continues to reevaluate its options.
During the past several years, the NRC has placed two of ComEd's nuclear
generating stations, Zion station and Dresden station, on its list of plants to
be monitored closely. Although Zion station (which was placed on the list in
early 1991) was removed from that list in February 1993, Dresden station (which
was placed on the list in early 1992) remains on the list. In June 1995, the
NRC reported that over the past year performance at Dresden was cyclical; plant
material condition needs to be improved at Dresden and a more effective work
management system is needed to deal with the corrective maintenance backlog.
Accordingly, Dresden will remain on the NRC list of plants to be monitored
closely. Because of the age of Zion, Dresden and Quad-Cities stations, ComEd
anticipates continued expenditures in order to improve reliability and to meet
NRC regulatory expectations. Beginning in late 1992, ComEd restructured its
management of its nuclear operations division and since that time has committed
additional resources to the stations' operations.
In January 1994, ComEd was notified by the NRC that ComEd's LaSalle County
and Quad-Cities stations were placed on the list of plants with adverse
performance trends. ComEd was informed that the NRC concerns about LaSalle
County station included, among other matters, deficient radiation worker
practices. The NRC concerns with Quad-Cities station included, among other
matters, deficiencies in the condition of certain station equipment and the
effectiveness of the operators of the units in identifying and responding to
certain operational problems. ComEd has provided written and verbal responses
to the NRC and is working to resolve the concerns. In February 1995, the NRC
concluded that LaSalle County had arrested the adverse trends in most areas and
"normal" designation should be returned. In June 1995, the NRC concluded that
the declining trends at Quad-Cities station also had been arrested in most
areas and normal designation should be returned. As noted above, ComEd
anticipates continued expenditures in order to improve reliability and to meet
NRC regulatory expectations in connection with Zion, Dresden and Quad-Cities
stations. In addition, generating station availability and performance during a
year may be issues in fuel reconciliation proceedings in assessing the prudence
of fuel and power purchases during such year. Final ICC orders have been issued
in fuel reconciliation proceedings for years prior to 1994; however, certain
intervenors have appealed the ICC order in the 1989 fuel reconciliation
proceedings on issues relating to nuclear station performance.
In accordance with a commitment to the NRC, ComEd 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. ComEd replaced the stainless steel piping
susceptible to stress corrosion at Dresden Unit 3. ComEd believes the remedial
actions taken to minimize the impact of stress corrosion cracking on BWR
stainless steel reactor coolant piping have been successfully completed on
Dresden Units 2 and 3, Quad-Cities Units 1 and 2 and LaSalle County Units 1 and
2. Future work on this piping would consist of routine inspections and repairs.
As a result of ComEd's experience with the effects of inter-granular stress
corrosion of stainless steel materials in BWRs, an inspection, repair and
mitigation program of reactor vessel internals has been implemented. This
effort is intended to prevent non-budgeted costs and refueling outage
extensions resulting from unanticipated repairs occurring during a refueling
outage. During 1994 and 1995, approximately $18 million was expended on vessel
internals repairs for Dresden Units 2 and 3 and Quad-Cities Units 1 and 2. For
1996, current estimated budgeted expenditures for Dresden Unit 3 and Quad-
Cities Unit 2 are $7.5 million for repairs and mitigation, and for 1997, $9.7
million at LaSalle County Units 1 and 2 for installation of mitigation systems.
ComEd has studied the possibility of having to replace the steam generators
at its Zion station. The initial studies were completed in 1991 and additional
follow-up studies are continuing. Based on the most recent findings, it will
not be necessary to replace the Zion steam generators until at least the year
2005. ComEd has also studied the replacement of the steam generators at Byron
Unit 1 and Braidwood Unit 1. The studies indicate that, from a technical
standpoint, the steam generators should be replaced and, from
59
<PAGE>
an economic standpoint, the replacements should be performed at the earliest
possible time. The steam generator replacements are currently planned to be
completed in 1998 for Braidwood Unit 1 and in 1999 for Byron Unit 1. The
estimated replacement costs, including the costs of removal of the existing
steam generators, are approximately $235 million for each unit. Approximately
$170 million of expenditures is included in the current 1995-97 construction
program. See "Litigation" herein concerning litigation by ComEd against
Westinghouse concerning steam generators.
During the year 1994, civil penalties were imposed on ComEd by the NRC on
eight occasions for violations of NRC regulations in amounts aggregating
$867,500. Since January 1, 1995, the NRC has imposed on ComEd two civil
penalties totalling $200,000 for violations of NRC regulations. There are also
three enforcement issues currently outstanding and under review by the NRC.
ENVIRONMENTAL MATTERS. Air quality regulations, promulgated by the 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 ComEd's fossil-fueled generating facilities subject to this requirement have
been obtained and, where such permits are due to expire, ComEd has, in a timely
manner, filed applications for renewal or requested extensions of the existing
permits.
Under the Federal Clean Water Act, NPDES permits for discharges into
waterways are required to be obtained from the U.S. EPA or from the state
environmental agency to which the permit program has been delegated. Those
permits must be renewed periodically. ComEd and the Indiana Company either have
NPDES permits for all of their generating stations or have pending applications
for such permits under the current delegation of the program to the Illinois
EPA or the Indiana Department of Environmental Management. ComEd 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 Quad-
Cities station.
In 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 ComEd's Fisk,
Crawford, Will County, Joliet and Dresden generating stations. In 1991, the
Sierra Club and ComEd reached a settlement of this suit which was approved by
the Court in 1991. Under the settlement, ComEd 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 U.S. EPA, 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 are to be based on the
U.S. EPA's final guidance issued on March 13, 1995. ComEd is presently
evaluating the final guidance to assess the extent to which it may impact
certain ComEd facilities. Ultimately, the new rules may require that ComEd
install additional pollution control equipment or restrict operations at its
facilities that discharge, either directly or indirectly, into Lake Michigan.
The Clean Air Amendments require reductions in sulfur dioxide emissions from
ComEd's Kincaid station. The Clean Air 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
have been issued by the U.S. EPA based largely on historical levels of sulfur
dioxide emissions. These allowances are transferable and marketable. ComEd's
ability to increase generation in the future to meet expected increased demand
for electricity will depend in part on ComEd and the Indiana Company's ability
to acquire additional allowances or to reduce emissions below otherwise
allowable levels from their
60
<PAGE>
existing generating plants. In addition, the Clean Air Amendments require
studies to determine what controls, if any, should be imposed on utilities to
control air toxic emissions, including mercury. ComEd is currently burning low
sulfur coal at Kincaid station to meet Clean Air Act Phase I requirements.
ComEd will determine future compliance plans for Kincaid station as necessary.
The Clean Air Amendments also require reductions in nitrogen oxide emissions
from ComEd and the Indiana Company's fossil fuel generating units. On March 6,
1995, the U.S. EPA issued a proposed rule exempting existing sources inside the
Chicago ozone non-attainment area from further nitrogen oxide emission
reductions. The Illinois EPA is now considering nitrogen oxide emission
reductions at ComEd generating stations outside the Chicago ozone non-
attainment area due to ozone transport. Under the Acid Rain program, the U.S.
EPA will prepare nitrogen oxide emission regulations for all of ComEd's boilers
with a compliance date of January 1, 2000.
CERCLA provides for immediate response and removal actions coordinated by the
U.S. EPA to releases of hazardous substances into the environment and
authorizes the U.S. 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
U.S. EPA on the NPL. These responsible parties can be ordered to perform a
cleanup, can be sued for costs associated with a U.S. EPA directed cleanup, or
may voluntarily settle with the U.S. 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. ComEd and its subsidiaries are or are likely
to become parties to proceedings initiated by the U.S. EPA, state agencies
and/or other responsible parties under CERCLA with respect to a number of
sites, including 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. ComEd
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. ComEd also acquired former MGP sites as vacant real
estate on which ComEd facilities have been constructed. To date, ComEd has
identified 44 former MGP sites for which it may be liable for remediation.
ComEd presently estimates that its costs of former MGP site investigation and
remediation will aggregate from $25 million to $150 million in current-year
(1995) 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 ComEd is not able to determine the most probable
liability for such MGP costs, in accordance with accounting standards, a
reserve of approximately $25 million has been recorded as of December 31, 1994
and September 30, 1995, 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, 1994 and September 30, 1995, a reserve of $8 million has been recorded,
representing ComEd's estimate of the liability associated with cleanup costs of
remediation sites other than former MGP sites. Unicom and ComEd presently
estimate that ComEd's 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 Unicom or ComEd. 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.
In 1991, the U.S. Government filed a complaint in U.S. District Court
alleging that ComEd and four other defendants are PRPs 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
61
<PAGE>
located near ComEd's Byron station in Byron, Illinois. The U.S. Government
alleges that a portion of the site is owned by ComEd. The U.S. Government is
presently seeking reimbursement from the PRPs for past study and response costs
associated with the site of approximately $7 million. ComEd is currently
pursuing a negotiated settlement and is not actively pursuing cost recovery
from other PRPs at this time.
In 1992, the U.S. EPA notified ComEd and four other companies, including the
site operator, that they were PRPs for the costs associated with the
investigation and removal of contaminated soil at the Elgin Salvage and Supply
site in Elgin, Illinois. In 1993, the U.S. EPA issued an order under Section
106 of CERCLA to ComEd and the other parties to investigate and remove the
contamination from the site. ComEd sent substantial amounts of scrap cable and
other scrap metal to the site. The site investigation and remediation was
completed in March 1995 at a cost of approximately $9 million, except for final
U.S. EPA project review. 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 ComEd. ComEd 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. ComEd and the
site owner are in litigation with several insurance companies for claims. Also,
additional PRPs have responded to informational requests concerning their
potential liability at the site. Their participation should reduce ComEd's
percent allocation of such costs. Some of ComEd's electrical equipment
containing PCBs was sent to scrap and salvage facilities and, as a result,
ComEd may be liable for penalties and for the costs of cleanup of those
facilities.
In 1990, the IPCB replaced existing landfill regulations with new, more
stringent design and performance standards. These regulations are expected to
increase the cost to ComEd 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. ComEd has requested 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.
The outcome of many of the regulatory proceedings referred to above, if not
favorable, could have a material adverse effect on Unicom and ComEd's future
business and operating results.
An unresolved issue is whether exposure to 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. ComEd 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 ComEd) 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 ComEd and on the electric utility industry is
not predictable, but could be severe.
From time to time, Unicom and its subsidiaries 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 their facilities. Unicom and
ComEd do not believe, so far as they now foresee, that such violations or
defaults will have a material adverse effect on their future business and
operating results, except for events otherwise described in Unicom and ComEd's
Annual Reports on Form 10-K for the year ended December 31, 1994 or in these
Quarterly Reports on Form 10-Q for the quarterly period ended September 30,
1995, which could have such an effect.
62
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ------------------------------------------------------------------
<C> <S>
(12) Statement computing Commonwealth Edison Company ratios of earnings
to fixed charges and ratios of earnings to fixed charges and
preferred and preference stock dividend requirements.
(23)-1 Consent of independent public accountants applicable to Unicom
Corporation.
(23)-2 Consent of independent public accountants applicable to
Commonwealth Edison Company.
(27)-1 Financial data schedule of Unicom Corporation.
(27)-2 Financial data schedule of Commonwealth Edison Company.
</TABLE>
(b) Reports on Form 8-K
None.
63
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, each
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized on the 8th day of November, 1995. The
signature for each undersigned company shall be deemed to relate only to
matters having reference to such company and its subsidiaries thereof.
Unicom Corporation
Registrant
Roger F. Kovack
By __________________________________
Roger F. Kovack
Comptroller
(Chief accounting officer and
officer duly authorized to sign on
behalf of the registrant)
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)
64
<PAGE>
EXHIBIT INDEX
Exhibits filed with or incorporated by reference in Form 10-Q for the
quarterly period ended September 30, 1995:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ---------------------------------------------------------------------
<C> <S>
(12) Statement computing Commonwealth Edison Company ratios of earnings to
fixed charges and ratios of earnings to fixed charges and preferred
and preference stock dividend requirements.
(23)-1 Consent of independent public accountants applicable to Unicom
Corporation.
(23)-2 Consent of independent public accountants applicable to Commonwealth
Edison Company.
(27)-1 Financial data schedule of Unicom Corporation.
(27)-2 Financial data schedule of Commonwealth Edison Company.
</TABLE>
<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, September 30,
No. 1994 1995
- ---- ------------- --------------
<C><S> <C> <C>
1 Net income $ 423,946 $ 757,403
---------- ----------
2 Net provisions for income taxes and investment tax credits deferred
3 charged to-
4 Operations $ 300,764 $ 521,127
5 Other income (23,062) (9,362)
---------- ----------
6 $ 277,702 $ 511,765
---------- ----------
7 Fixed charges-
8 Interest on debt $ 621,909 $ 605,109
9 Estimated interest component of nuclear fuel and
10 other lease payments, rentals and other interest 64,885 74,192
11 Amortization of debt discount, premium and expense 22,804 22,506
12 Preferred securities dividend requirements of ComEd Financing I -- 188
---------- ----------
13 $ 709,598 $ 701,995
---------- ----------
14 Preferred and preference stock dividend requirements-
15 Provisions for preferred and preference stock dividends $ 64,927 $ 67,380
16 Taxes on income required to meet provisions for
17 preferred and preference stock dividends 42,854 44,292
---------- ----------
18 $ 107,781 $ 111,672
---------- ----------
19 Fixed charges and preferred and preference stock
20 dividend requirements $ 817,379 $ 813,667
---------- ----------
21 Earned for fixed charges and preferred and preference stock
22 dividend requirements $1,411,246 $1,971,163
---------- ----------
23 Ratios of earnings to fixed charges (line 22 divided by line 13) 1.99 2.81
========== ==========
24 Ratios of earnings to fixed charges and preferred and preference
25 stock dividend requirements (line 22 divided by line 20) 1.73 2.42
========== ==========
</TABLE>
<PAGE>
Exhibit (23)-1
Unicom Corporation
Form 10-Q File No. 1-11375
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 September 30, 1995, into Unicom Corporation's previously filed
prospectuses 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), as further amended by Post-Effective Amendment No. 1 on Form S-8
(relating to Commonwealth Edison Company's Employee Savings and Investment Plan)
and Post-Effective Amendment No. 2 on Form S-8 (relating to Unicom Corporation's
Employee Stock Purchase Plan), and Form S-8 Registration Statement File No.
33-56991 (relating to Unicom Corporation's Long-Term Incentive Plan).
ARTHUR ANDERSEN LLP
Chicago, Illinois
November 8, 1995
<PAGE>
Exhibit (23)-2
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 September 30, 1995, into Commonwealth Edison Company's previously filed
prospectuses as follows: (1) 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); (2) 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
(3) prospectus dated September 19, 1995, constituting part of Amendment No. 1 to
Form S-3 Registration Statement File No. 33-61343, as amended (relating to
Company-Obligated Mandatorily Redeemable Preferred Securities of ComEd Financing
I). 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, 1994 and September 30, 1995 appearing on page 42 of this Form 10-Q.
ARTHUR ANDERSEN LLP
Chicago, Illinois
November 8, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<LEGEND> This schedule contains summary financial information extracted from
the Consolidated Balance Sheet and Statement of Consolidated Capitalization as
of September 30, 1995 and the related Statements of Consolidated Income,
Retained Earnings and Cash Flows for the nine months ended September 30, 1995
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000918040
<NAME> Unicom Corporation
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 17,063,102
<OTHER-PROPERTY-AND-INVEST> 1,337,864
<TOTAL-CURRENT-ASSETS> 1,976,651
<TOTAL-DEFERRED-CHARGES> 0<F1>
<OTHER-ASSETS> 3,168,063
<TOTAL-ASSETS> 23,545,680
<COMMON> 4,901,661
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 905,283
<TOTAL-COMMON-STOCKHOLDERS-EQ> 5,803,232<F2>
265,047<F3>
508,058<F3>
<LONG-TERM-DEBT-NET> 6,618,332<F4>
<SHORT-TERM-NOTES> 7,150
<LONG-TERM-NOTES-PAYABLE> 0<F4>
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 777,238
30,687<F3>
<CAPITAL-LEASE-OBLIGATIONS> 407,614
<LEASES-CURRENT> 185,396
<OTHER-ITEMS-CAPITAL-AND-LIAB> 8,742,926
<TOT-CAPITALIZATION-AND-LIAB> 23,545,680<F5>
<GROSS-OPERATING-REVENUE> 5,328,519
<INCOME-TAX-EXPENSE> 441,310<F6>
<OTHER-OPERATING-EXPENSES> 3,762,134
<TOTAL-OPERATING-EXPENSES> 4,209,314
<OPERATING-INCOME-LOSS> 1,119,205
<OTHER-INCOME-NET> (68,301)<F6><F7>
<INCOME-BEFORE-INTEREST-EXPEN> 1,056,774
<TOTAL-INTEREST-EXPENSE> 451,874
<NET-INCOME> 604,900
0<F7>
<EARNINGS-AVAILABLE-FOR-COMM> 604,900
<COMMON-STOCK-DIVIDENDS> 257,636
<TOTAL-INTEREST-ON-BONDS> 0<F8>
<CASH-FLOW-OPERATIONS> 1,867,793
<EPS-PRIMARY> 2.82
<EPS-DILUTED> 0
<FN>
<F1> This item is not disclosed as a separate line item on the Consolidated
Balance Sheet.
<F2> Includes a deduction of $3,712 thousand for preference stock expense of
ComEd.
<F3> Preferred and preference stocks of ComEd.
<F4> $1,098,750 thousand of notes and long-term notes payable to banks is
included in LONG-TERM-DEBT-NET.
<F5> Includes $200,000 thousand of ComEd-obligated mandatorily redeemable
preferred securities of ComEd Financing I.
<F6> A tax benefit of $5,870 thousand related to nonoperating activities is
included in INCOME-TAX-EXPENSE.
<F7> A $50,447 thousand provision for preferred and preference stock dividends
of ComEd and a $188 thousand provision for preferred securities dividends
of ComEd Financing I are included in OTHER-INCOME-NET.
<F8> This item is not disclosed as a separate line item on the Statement of
Consolidated Income.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<LEGEND> This schedule contains summary financial information extracted from
the Consolidated Balance Sheet and Statement of Consolidated Capitalization as
of September 30, 1995 and the related Statements of Consolidated Income,
Retained Earnings and Cash Flows for the nine months ended September 30, 1995
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000022606
<NAME> Commonwealth Edison Company
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 17,063,102
<OTHER-PROPERTY-AND-INVEST> 1,281,536
<TOTAL-CURRENT-ASSETS> 1,952,116
<TOTAL-DEFERRED-CHARGES> 0<F1>
<OTHER-ASSETS> 3,164,406
<TOTAL-ASSETS> 23,461,160
<COMMON> 2,677,427
<CAPITAL-SURPLUS-PAID-IN> 2,206,815
<RETAINED-EARNINGS> 867,678
<TOTAL-COMMON-STOCKHOLDERS-EQ> 5,751,920
265,047
508,058
<LONG-TERM-DEBT-NET> 6,584,470<F2>
<SHORT-TERM-NOTES> 7,150
<LONG-TERM-NOTES-PAYABLE> 0<F2>
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 776,100
30,687
<CAPITAL-LEASE-OBLIGATIONS> 405,786
<LEASES-CURRENT> 185,231
<OTHER-ITEMS-CAPITAL-AND-LIAB> 8,746,711
<TOT-CAPITALIZATION-AND-LIAB> 23,461,160<F3>
<GROSS-OPERATING-REVENUE> 5,328,550
<INCOME-TAX-EXPENSE> 444,856<F4>
<OTHER-OPERATING-EXPENSES> 3,753,626
<TOTAL-OPERATING-EXPENSES> 4,204,352
<OPERATING-INCOME-LOSS> 1,124,198
<OTHER-INCOME-NET> (18,273)<F4><F5>
<INCOME-BEFORE-INTEREST-EXPEN> 1,111,795
<TOTAL-INTEREST-EXPENSE> 451,021
<NET-INCOME> 660,774
50,447
<EARNINGS-AVAILABLE-FOR-COMM> 610,327
<COMMON-STOCK-DIVIDENDS> 257,032
<TOTAL-INTEREST-ON-BONDS> 0<F6>
<CASH-FLOW-OPERATIONS> 1,935,497
<EPS-PRIMARY> 2.85
<EPS-DILUTED> 0
<FN>
<F1> This item is not disclosed as a separate line item on the Consolidated
Balance Sheet.
<F2> $1,063,750 thousand of notes and long-term notes payable to banks is
included in LONG-TERM-DEBT-NET.
<F3> Includes $200,000 thousand of company-obligated mandatorily redeemable
preferred securities of ComEd Financing I.
<F4> A tax benefit of $5,870 thousand related to nonoperating activities is
included in INCOME-TAX-EXPENSE.
<F5> Includes a $188 thousand provision for preferred securities dividends of
ComEd Financing I.
<F6> This item is not disclosed as a separate line item on the Statement of
Consolidated Income.
</FN>
</TABLE>
