SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 16, 1997
Commission Registrant; State of Incorporation; IRS Employer
File Number Address; and Telephone Number Identification No.
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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
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ITEM 5. OTHER EVENTS.
PASSAGE OF DEREGULATION LEGISLATION
On December 16, 1997, the Governor of Illinois signed into law
legislation that establishes a phased-process to introduce
price-based competition into the supply of electricity in Illinois
under a less regulated structure. The legislation provides for,
among other things, a 15% residential base rate reduction
commencing August 1, 1998, an additional 5% residential base rate
reduction commencing May 1, 2002, and customer access to other
electric suppliers in a phased-in process. Access for commercial
and industrial customers will occur over a period from October 1999
to December 2000, and access for residential customers will occur
after May 1, 2002. The legislation also provides for the
collection of a non-bypassable competitive transition charge (CTC)
from customers who choose another electric service provider during
a transition period that extends through 2006, and can be extended
through 2008, if approved by the Illinois Commerce Commission.
Additionally, the legislation includes the option to eliminate the
fuel adjustment clause (FAC)(as discussed below), the ability to
securitize certain future revenues, the revision of various
regulatory requirements to permit operational flexibility and the
leveling of certain regulatory and tax provisions as applied to
various electric service providers.
As a result of the legislation, prices for the supply of electric
generation are expected to transition from cost-based, regulated
rates to rates determined by competitive market forces. The CTC
allows Commonwealth Edison Company(ComEd) to recover a portion of
any of its costs which might otherwise be unrecoverable under
market-based rates. Nonetheless, ComEd will need to take steps to
address the portion of such costs which are not recoverable through
the CTC. Such steps include cost control efforts and developing
new sources of revenue.
ACCOUNTING EFFECTS
ComEd's financial statements reflect the application of Statement
of Financial Accounting Standards (SFAS) No. 71, Accounting for the
Effects of Certain Types of Regulation. This statement allows
ComEd to record certain regulatory assets and liabilities, which
are expected to be recovered or settled in future rates and would
not be recorded under generally accepted accounting principles for
non-regulated entities. The Emerging Issues Task Force of the
Financial Accounting Standards Board (EITF) has recently concluded
that when legislation is enacted which has the ultimate effect of
deregulating rates for a separable portion of the business, SFAS
No. 71 should be discontinued immediately for that separable
portion of the business. Additionally, the EITF concluded that
regulatory assets and liabilities, that originated in the portion
of the business being deregulated, should be written off unless
their recovery is specifically provided for through future cash
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flows from the regulated portion of the business. Because the new
legislation is ultimately expected to lead to market-based pricing
of electric generation services, ComEd will discontinue SFAS No. 71
regulatory accounting practices for the generation portion of its
business in the fourth quarter of 1997.
ComEd has evaluated the regulatory assets and liabilities related
to the generation portion of its business and determined that it is
not probable that such costs will be recovered through the cash
flows from the regulated portion of its business. Accordingly, the
generation-related regulatory assets and liabilities will be
written off in the fourth quarter of 1997, resulting in an
estimated after-tax charge to earnings of $750 - $850 million.
These costs relate principally to previously incurred costs
originally expected to be collected through future revenues,
including income tax benefits previously flowed through to
customers, deferred charges on Byron and Braidwood nuclear
generating plants, unamortized loss on reacquired debt and other
miscellaneous production-related costs.
In addition, ComEd has evaluated whether the recoverability of the
costs of its generating stations has been impaired as defined in
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets
and Long-Lived Assets to be Disposed Of. This evaluation was
conducted to determine whether future revenues expected to be
recovered from electric supply services will be sufficient to cover
the costs of its generating assets. ComEd has concluded, as a
result of these studies, that impairment, as defined in SFAS No.
121, does not exist and that no plant write-downs are necessary at
this time. However, ComEd is engaged in an ongoing examination of
its assets and operations. If ComEd retires or closes one or more
generating plants, further write-offs will be required. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations," subcaption "Changes in the Electric Utility
Industry" in Unicom Corporation's and ComEd's Quarterly Report on
Form 10-Q for the quarterly period ended September 30, 1997 for
additional information.
FUEL ADJUSTMENT CLAUSE
Under ComEd's current regulated rates, the FAC 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.
Pursuant to an option contained in the new legislation, ComEd filed
a tariff on December 16, 1997 to eliminate its FAC as of January 1,
1997. Elimination of the FAC requires ComEd to refund to customers
any net FAC charges collected from January 1, 1997 through December
31, 1997. Such FAC charges are estimated to be $26 million
(after-tax). These costs, as well as deferred underrecovered
energy costs of approximately $20 million (after-tax) which are
unrecoverable, will be recorded as a reduction to net income in
1997.
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Additionally, elimination of the FAC and a transition to
market-based pricing for generation related costs will require
ComEd to write down its investment in uranium-related properties.
Current projections of the market price for uranium indicate that
the expected incremental costs of mining and milling uranium at
such properties will exceed the expected market price for uranium.
Such costs are not expected to be recoverable in a competitive
market. A write down of ComEd's investment in uranium-related
properties to realizable value will result in an estimated
reduction to net income in the fourth quarter of 1997 of $60 - $70
million (after-tax).
Except for historical information, the information in this report
constitutes forward looking statements. Forward looking statements
are inherently uncertain and subject to risks and the statements
should be viewed with caution. Actual results or experience could
differ materially from the forward looking statements as a result
of many factors, including the ability of ComEd to control its
costs and develop new sources of revenues, the final results of
ComEd's evaluation of its regulatory assets and liabilities related
to its generation business, changes in the market price for
electricity, and changes in the market price for uranium or the
costs of uranium mining or milling.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrants have duly caused this report to be signed on
their behalf by the undersigned thereunto duly authorized.
UNICOM CORPORATION
(Registrant)
Date: December 16, 1997 By: John C. Bukovski
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John C. Bukovski
Senior Vice President
COMMONWEALTH EDISON COMPANY
(Registrant)
Date: December 16, 1997 By: John C. Bukovski
------------------------
John C. Bukovski
Senior Vice President
