<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK
ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
<TABLE>
<CAPTION>
COMMISSION REGISTRANT; STATE OF INCORPORATION; IRS EMPLOYER
FILE 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>
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE
- --------------------------- ON WHICH REGISTERED
-------------------------
UNICOM CORPORATION
- ------------------
Common Stock, without par value New York, Chicago and Pacific
COMMONWEALTH EDISON COMPANY
- ---------------------------
(Listed on inside cover)
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 .
----- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrants' knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
- -------------------------------------------------------------------------------
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<PAGE>
COMMONWEALTH EDISON COMPANY Securities Registered Pursuant to Section 12(b) of
the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- --------------------------------------- ---------------------------
First Mortgage Bonds:
7 5/8% Series 25, due June 1, 2003 )
8% Series 26, due October 15, 2003 ) New York
8 1/8% Series 35, due January 15, 2007 )
Sinking Fund Debentures:
3%, due April 1, 1999 )
2 7/8%, due April 1, 2001 ) New York
7 5/8% Series 1, due February 15, 2003 )
2 3/4%, due April 1, 1999 New York and Chicago
Cumulative Preference Stock, without par
value:
$1.90; $2.00; $7.24; $8.40; $8.38; and
$8.40 Series B New York, Chicago and Pacific
$2.425 New York
Company-Obligated Mandatorily
Redeemable Preferred Securities of
Subsidiary Trust Holding Solely the
Company's 8.48% Subordinated Debt
Securities New York
THE ESTIMATED AGGREGATE MARKET VALUE OF UNICOM CORPORATION'S 216,683,743
shares of outstanding Common Stock, without par value, was approximately
$6,948 million as of February 28, 1998. In excess of 99.9% of Unicom
Corporation's voting stock was owned by non-affiliates as of that date.
THE ESTIMATED AGGREGATE MARKET VALUE OF COMMONWEALTH EDISON COMPANY'S
outstanding $1.425 Convertible Preferred Stock, Cumulative Preference Stock
and Company-Obligated Mandatorily Redeemable Preferred Securities of
Subsidiary Trusts Holding Solely the Company's Subordinated Debt Securities
was approximately $1,107 million as of February 28, 1998. Unicom Corporation
held in excess of 99.99% of the 214,231,528 shares of outstanding Common
Stock, $12.50 par value, of Commonwealth Edison Company as of that date.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of Unicom Corporation's Current Report on Form 8-K dated January
30, 1998 are incorporated by reference into Parts I, II and IV of the Unicom
Corporation Annual Report on Form 10-K and portions of its definitive Proxy
Statement to be filed prior to April 30, 1998, relating to its Annual Meeting
of shareholders to be held on May 28, 1998, are incorporated by reference into
Part III of the Unicom Corporation Annual Report on Form 10-K.
Portions of Commonwealth Edison Company's Current Report on Form 8-K dated
January 30, 1998 are incorporated by reference into Parts I, II and IV of the
Commonwealth Edison Company Annual Report on Form 10-K and portions of its
definitive Information Statement to be filed prior to April 30, 1998, relating
to its Annual Meeting of shareholders to be held on May 28, 1998, are
incorporated by reference into Part III of the Commonwealth Edison Company
Annual Report on Form 10-K.
<PAGE>
UNICOM CORPORATION
AND
COMMONWEALTH EDISON COMPANY
FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
This document contains the Annual Reports on Form 10-K for the fiscal year
ended December 31, 1997 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.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Definitions............................................................... 1
ANNUAL REPORT ON FORM 10-K FOR UNICOM CORPORATION:
Part I
Item 1. Business........................................................ 2
General......................................................... 2
Changes in the Electric Utility Industry........................ 3
Net Electric Generating Capability.............................. 6
Construction Program............................................ 6
Rate Matters.................................................... 8
Fuel Supply..................................................... 8
Regulation...................................................... 10
Employees....................................................... 16
Interconnections................................................ 16
Franchises...................................................... 16
Executive Officers of the Registrant............................ 18
Operating Statistics............................................ 19
Year 2000 Conversion............................................ 20
Market Risks.................................................... 20
Forward-Looking Information..................................... 20
Item 2. Properties...................................................... 20
Item 3. Legal Proceedings............................................... 22
Item 4. Submission of Matters to a Vote of Security Holders............. 23
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters......................................................... 23
Item 6. Selected Financial Data......................................... 25
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................... 25
Item 8. Financial Statements and Supplementary Data..................... 25
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure............................................ 25
Part III
Item 10. Directors and Executive Officers of the Registrant............. 25
Item 11. Executive Compensation......................................... 25
Item 12. Security Ownership of Certain Beneficial Owners and
Management..................................................... 25
Item 13. Certain Relationships and Related Transactions................. 25
</TABLE>
i
<PAGE>
UNICOM CORPORATION
AND
COMMONWEALTH EDISON COMPANY
FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
TABLE OF CONTENTS (CONCLUDED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ANNUAL REPORT ON FORM 10-K FOR COMMONWEALTH EDISON COMPANY:
Part I
Item 1. Business........................................................ 26
Executive Officers of the Registrant............................... 26
Item 2. Properties...................................................... 28
Item 3. Legal Proceedings............................................... 28
Item 4. Submission of Matters to a Vote of Security Holders............. 28
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters................................................................ 28
Item 6. Selected Financial Data......................................... 28
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of
Operations...................................................... 28
Item 8. Financial Statements and Supplementary Data..................... 28
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure............................................ 28
Part III
Item 10. Directors and Executive Officers of the Registrant............. 28
Item 11. Executive Compensation......................................... 29
Item 12. Security Ownership of Certain Beneficial Owners and Management. 29
Item 13. Certain Relationships and Related Transactions................. 29
ANNUAL REPORTS ON FORM 10-K FOR UNICOM CORPORATION AND COMMONWEALTH EDISON
COMPANY:
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-
K...................................................................... 30
(a) Financial Statements, Financial Statement Schedules and Exhib-
its............................................................... 30
(b) Reports on Form 8-K............................................ 37
Report of Independent Public Accountants on Supplemental Schedule to
Unicom
Corporation............................................................ 38
Report of Independent Public Accountants on Supplemental Schedule to
Commonwealth Edison Company............................................ 39
Schedule II--Valuation and Qualifying Accounts.......................... 40
Signature Page to Unicom Corporation Annual Report on Form 10-K......... 41
Signature Page to Commonwealth Edison Company Annual Report on Form 10-
K...................................................................... 42
</TABLE>
ii
<PAGE>
DEFINITIONS
The following terms are used in this document with the following meanings:
<TABLE>
<CAPTION>
TERM MEANING
---------------------- -------------------------------------------------------
<C> <S>
1997 Act The Illinois Electric Service Customer Choice and Rate
Relief Law of 1997
BWR Boiling water reactor
CERCLA Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended
CFC Chlorofluorocarbon
CHA Chicago Housing Authority
Clean Air Amendments Clean Air Act Amendments of 1990
ComEd Commonwealth Edison Company
Congress U.S. Congress
Cotter Cotter Corporation, a ComEd subsidiary
CTC Non-bypassable "competitive transition charge"
DOE U.S. Department of Energy
EMFs Electric and magnetic fields
FAC Fuel adjustment clause
FERC Federal Energy Regulatory Commission
FERC Order FERC Open Access Order No. 888 issued in April 1996
IBEW International Brotherhood of Electrical Workers (AFL-
CIO)
ICC Illinois Commerce Commission
IDNS Illinois Department of Nuclear Safety
IDR Illinois Department of Revenue
Illinois EPA Illinois Environmental Protection Agency
Indiana Company Commonwealth Edison Company of Indiana, Inc., a ComEd
subsidiary
INPO Institute of Nuclear Power Operations
IPCB Illinois Pollution Control Board
ISO Independent System Operator
January 30, 1998 Unicom's Current Report on Form 8-K including auditor's
Form 8-K Reports opinion dated January 30, 1998 and ComEd's Current
Report on Form 8-K including auditor's opinion dated
January 30, 1998
MAIN Mid-America Interconnected Network
MGP Manufactured gas plant
NERC North American Electric Reliability Council
NPDES National Pollutant Discharge Elimination System
NPL National Priorities List
NRC Nuclear Regulatory Commission
O&M Operation and maintenance
Rate Order ICC rate order issued in January 1995, as subsequently
modified
SEC Securities and Exchange Commission
S&P Standard & Poor's
Trust Securities ComEd-obligated mandatorily redeemable preferred
securities of subsidiary trusts holding solely ComEd's
subordinated debt securities
Unicom Unicom Corporation
Unicom Energy Services Unicom Energy Services Inc., a Unicom subsidiary
Unicom Enterprises Unicom Enterprises Inc., a Unicom subsidiary
UT Holdings UT Holdings Inc., a Unicom subsidiary
U.S. EPA U.S. Environmental Protection Agency
</TABLE>
1
<PAGE>
ANNUAL REPORT ON FORM 10-K FOR UNICOM CORPORATION
PART I
ITEM 1. BUSINESS.
GENERAL
Unicom was incorporated in January 1994. ComEd, a regulated electric
utility, is the principal subsidiary of Unicom. Unicom Enterprises is an
unregulated subsidiary of Unicom and is engaged, through its subsidiaries, in
energy service activities. Unicom's principal executive offices are located at
10 South Dearborn Street, Post Office Box A-3005, Chicago, Illinois 60690-
3005, and its telephone number is 312/394-7399.
ComEd represents substantially all of the assets, revenues and net income
(loss) of Unicom; and Unicom's resources and results of operations are largely
dependent on, and reflect, those of ComEd. Consequently, the following
discussion focuses on ComEd's utility operations although information is also
provided about Unicom's unregulated operations.
Utility Operations
ComEd is engaged principally in the production, purchase, transmission,
distribution and sale of electricity to a diverse base of residential,
commercial, industrial and wholesale customers. ComEd was organized in the
state of Illinois on October 17, 1913 as a result of the merger of
Cosmopolitan Electric Company into the original corporation named Commonwealth
Edison Company. The latter had been incorporated on September 17, 1907.
ComEd's electric service territory has an area of approximately 11,300 square
miles and an estimated population of approximately 8 million as of December
31, 1997. It includes the city of Chicago, an area of about 225 square miles
with an estimated population of approximately 3 million from which ComEd
derived approximately one-third of its ultimate consumer revenues in 1997.
ComEd had 3.4 million electric customers at December 31, 1997. ComEd's
principal executive offices are located at 10 South Dearborn Street, Post
Office Box 767, Chicago, Illinois 60690-0767, and its telephone number is
312/394-4321.
Unregulated Operations
Unicom Enterprises is engaged, through subsidiaries, in energy service
activities which are not subject to utility regulation by state or federal
agencies. One of these subsidiaries, UT Holdings, provides district cooling,
heating and related services to offices and other buildings in the central
business district of the city of Chicago under a non-exclusive use agreement
with the city of Chicago for an initial term expiring in 2014. District
cooling involves, in essence, the production of chilled water at one or more
central locations and its circulation to customers' buildings through a closed
circuit of supply and return piping. Such water is circulated through
customers' premises primarily for air conditioning. This process is used by
customers in lieu of self-generated cooling. As a result of the Clean Air
Amendments, the manufacture of CFCs has been curtailed since January 1996,
thereby creating a marketing opportunity for non-CFC based systems, such as UT
Holdings' district cooling. UT Holdings is involved in energy projects in
other cities, generally working with the local utilities in those cities.
Unicom Energy Services, another subsidiary of Unicom Enterprises, is engaged
in providing energy services including gas services, performance contracting,
distributed energy and active energy management systems. In 1997, Unicom
Energy Services entered into a joint venture with Sonat Marketing Company L.P.
to market natural gas and related services to large gas purchasers within
ComEd's service area in Northern Illinois and other Midwestern areas. As an
entry into the
2
<PAGE>
distributed energy market, Unicom Energy Services also entered into an
alliance with AlliedSignal Power Systems, Inc., a subsidiary of AlliedSignal
Inc., to market, install and service an electric energy generator developed by
AlliedSignal, known as a TurboGenerator, in a 12-state region and the province
of Ontario, Canada. Unicom Energy Services entered into an exclusive national
distributorship agreement with Engage Networks, Inc. to market active energy
management software and related hardware and services.
CHANGES IN THE ELECTRIC UTILITY INDUSTRY
Unicom and its predominant business, electric energy generation,
transmission and distribution, are in a period of fundamental change in the
manner in which customers obtain, and energy suppliers provide, energy
services. These changes are attributable to changes in technology, the
relaxation of regulatory barriers to utilities' respective service territories
as well as to efforts to change the manner in which electric utilities are
regulated. Federal law and regulations have been amended to provide for open
transmission system access, and various states, including Illinois, are
considering, or have adopted, new regulatory structures to allow access by
some or all customers to energy suppliers in addition to the local utility.
Electric Utility Industry. The electric utility industry has historically
consisted of vertically integrated companies which combine generation,
transmission and distribution assets; serve customers within relatively
defined service territories; and operate under extensive regulation with
respect to rates, operations and other matters. Utilities have operated under
a regulatory compact with the state, with a statutory obligation to serve all
of the electricity needs within their service territory in a nondiscriminatory
manner. Historically, investment and operating decisions have been made based
upon the utilities' respective assessment of the current and projected needs
of their customers. In view of this obligation, regulation has focused on
investment and operating costs, and rates have been based on a recovery of
some or all of such prudently incurred costs plus a return on invested
capital. Such rate regulation, and the ability of utilities to recover
investment and other costs through rates, have provided the basis for
recording certain costs as regulatory assets. These assets represent costs
which are allocated over future periods reflecting related regulatory
treatment, rather than expensed in the current period.
The 1997 Act. On December 16, 1997, the Governor of Illinois signed into law
the 1997 Act, which established a phased-process to introduce competition into
the electric industry in Illinois under a less regulated structure. The 1997
Act, as it applies to ComEd, provides for, among other things, a 15%
residential base rate reduction commencing on August 1, 1998, an additional 5%
residential base rate reduction commencing on 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
15% residential base rate reduction, commencing on August 1, 1998, is expected
to reduce ComEd's operating revenues by approximately $160 million and $375
million in 1998 and 1999, respectively, compared to 1997 rate levels. ComEd is
engaged in certain pricing experiments contemplated by the 1997 Act, which are
expected to reduce ComEd's operating revenues by approximately $30 million and
$60 million in 1998 and 1999, respectively, compared to 1997 rate levels,
notwithstanding the effects of customer growth.
The 1997 Act also provides for the collection of a CTC from customers who
choose another electric service provider during a transition period that
extends through 2006, and can be extended through 2008 with ICC approval if
certain factors are met. The CTC will be established in accordance with a
formula defined in the 1997 Act. The CTC, which will be applied on a cents per
kilowatthour basis, considers the revenue which would have been collected from
a customer under tariffed rates, reduced by the revenue the utility will
receive for providing delivery services to the customer, the market price for
electricity and a defined mitigation factor which represents the utility's
opportunity to develop new revenue sources and achieve cost savings.
3
<PAGE>
Notwithstanding these rate reductions, and subject to certain earnings
tests, a rate freeze will generally be in effect until at least January 1,
2005. During this period, utilities may reorganize, sell or assign assets,
retire or remove plants from service, and accelerate depreciation or
amortization of assets with limited ICC regulatory review. Under the earnings
provision of the 1997 Act, if the earned return on common equity of a utility
during this period exceeds an established threshold, a portion of the excess
earnings must be refunded to customers. A utility may request a rate increase
during the rate freeze period when necessary to ensure the utility's financial
viability, but not before January 1, 2000.
Under the 1997 Act, utilities are required to continue to offer delivery
services, including the transmission and distribution of electric energy, such
that customers who select an alternative energy supplier can receive electric
energy from that supplier using existing transmission and distribution
facilities. Such services will continue to be offered under cost-based
regulated rates. The 1997 Act also requires utilities to establish or join an
ISO that will independently manage and control utility transmission systems.
Additionally, the 1997 Act includes the option to eliminate the FAC, the
leveling of certain regulatory requirements to permit operational flexibility,
the leveling of certain regulatory and tax provisions as applied to various
electric suppliers and a new more stringent liability standard applicable to
ComEd in the event of a major outage.
The 1997 Act also allows ComEd to unbundle a portion of its future revenues,
including tariffed rates and CTC revenues, and issue securities backed by
these revenues. The proceeds from such security issuances must generally be
used to refinance outstanding debt or equity or for certain other limited
purposes. The total amount of such securities that ComEd may issue is
approximately $6.8 billion; approximately one-half of that amount can be
issued in the twelve-month period commencing on August 1, 1998.
As a result of the 1997 Act, 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 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.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations," subcaption "Changes in the Electric Utility Industry--
Accounting Effects Related to the 1997 Act" and Note 2 of Notes to Financial
Statements in the January 30, 1998 Form 8-K Reports, which are incorporated
herein by reference, for the accounting effects related to the 1997 Act.
Federal Regulation. The Federal Energy Policy Act of 1992, among other
things, empowered the FERC to introduce a greater level of competition into
the wholesale marketplace for electric energy. In April 1996, the FERC Order
was issued requiring utilities to file open access tariffs with regard to
their transmission systems. These tariffs set forth the terms, including
prices, under which other parties and the utility's wholesale marketing
function may use the utility's transmission system. ComEd has an approved open
access tariff with the FERC. The FERC Order requires the separation of the
transmission operations and wholesale marketing functions so as to ensure that
unaffiliated third parties have access to the same information as to system
availability and other requirements. The FERC Order further requires utilities
to operate an electronic bulletin board to make transmission price and access
data available to all potential users. A key feature of the FERC Order is that
it contemplates full recovery of a utility's costs "stranded" by competition.
These costs are "stranded" or "strandable" to the extent market-based rates
would be insufficient to allow for their full recovery. To recover stranded
costs, the utility must show that it had a reasonable expectation that it
would continue to serve the customer in question under its regulatory compact.
In addition, some governmental entities, such as cities, may elect to
"municipalize" a utility's distribution facilities
4
<PAGE>
through condemnation proceedings. Such municipalities would then be able to
purchase electric power on a wholesale basis and resell it to customers over
the newly acquired facilities. The FERC Order provides for the recovery of a
utility's investment stranded by municipalization.
ComEd's Response to Regulatory Changes. ComEd is responding, and is
undertaking significant strategic planning efforts to respond further, to the
developments within the utility industry and the 1997 Act and its potential
for strandable investment. During the past several years, such efforts have
focused on cost reductions, including personnel reductions, efficiencies in
purchasing and inventory management, and an incentive compensation system
keyed to cost control and improvement in shareholder value. Notwithstanding
these efforts, ComEd's costs remain high in comparison to its neighboring
utilities. Although ComEd's operating results and financial condition have
historically been affected by various rate proceedings, ComEd expects that the
changes in the national and Illinois electric energy marketplace, and ComEd's
activities anticipating or responding to them, will directly impact its
operating results and financial condition over the next several years.
ComEd anticipates that the 1997 Act, and the resultant increasing
competition to supply energy in Illinois and elsewhere, will have significant
effects upon its revenues and assets as it takes steps to adjust its
operations and services to meet the changing market for electric energy. Both
Unicom and ComEd have been examining methods of positioning themselves and
their affiliates to deal with those effects and to address the developing
opportunities and challenges. ComEd has been engaged in a broad-based
examination of its assets and operations, particularly nuclear and fossil
generation and generation-related (i.e., fuel and inventory) assets, with a
view toward rationalizing their investment and operating costs against their
ability to contribute to the revenues of ComEd under various market scenarios.
Such an assessment involves the consideration of numerous factors, including
revenue contribution, operating costs, impacts on ComEd's service obligations,
purchase commitments and the impact of various options. Such options include
continued operation with accelerated depreciation, indefinite suspension from
operation, sale to a third party and retirement or closure. As discussed
below, ComEd recently ceased nuclear generation operations and retired
facilities at its Zion Station. If ComEd retired or closed one or more
additional generating plants, particularly a nuclear plant, such retirement
would have a material impact on Unicom and ComEd's financial position and
results of operations. See "General--Unregulated Operations" above regarding
Unicom Energy Services' energy services activities.
On January 14, 1998, the Boards of Directors of Unicom and ComEd authorized
the permanent cessation of nuclear generation operations and retirement of
facilities at ComEd's 2,080 megawatt Zion nuclear generating station. Such
retirement resulted in a charge for 1997 of $523 million (after-tax) or $2.42
per common share. The decision to close Zion Station was a result of an
ongoing analysis, which ComEd performed regarding the economic value of its
generating assets in light of the expected changes in the manner in which
electric energy is marketed and sold. The passage of the 1997 Act provided a
clearer basis for evaluating the costs and benefits of alternative courses of
action. In reaching the decision to cease nuclear generation operations at
Zion Station, the Boards also considered the significant uncertainty
associated with continued operation of the station due to the degradation of
the steam generators, and the expected operating costs associated with
continued station operation.
Notwithstanding the closure of Zion Station as a nuclear generating
facility, a portion of the station will continue to be used to provide voltage
support in the transmission system that serves ComEd's northern region. Such
support will require capital expenditures at the station as well as upgrades
to the transmission system at various points, in order to improve the ability
to import and transport power through the system. See Note 5 of Notes to
Financial Statements in the January 30, 1998 Form 8-K Reports, which are
incorporated herein by reference, for additional information.
5
<PAGE>
In April 1996, ComEd announced that it had finalized agreements to sell two
of its coal-fired generating stations, representing 1,598 megawatts of
generating capacity, and to enter into exclusive 15-year purchased power
agreements for the output of the stations. The sale of State Line Station was
completed in December 1997 and the sale of Kincaid Station was completed in
February 1998. The net proceeds of the sales, after income tax effects and
closing costs, were approximately $190 million. The proceeds will be used to
retire or redeem existing debt.
ComEd joined with eight Midwestern utilities to form a regional Midwest ISO
in January 1998. The Midwest ISO is a key element in accommodating the
restructuring of the electric industry and will promote enhanced reliability
of the transmission system, equal access to the transmission system and
increased competition. The Midwest ISO will establish an independent body that
will ultimately direct the management of the transmission system for the
utilities involved. ComEd will retain ownership of its transmission lines. The
formation of the Midwest ISO is subject to FERC approval.
NET ELECTRIC GENERATING CAPABILITY
As described under "Item 2. Properties," ComEd considers its non-summer net
generating capability to be 20,736,000 kilowatts (including the recently sold
Kincaid and State Line generating stations, whose capability is committed to
ComEd pursuant to exclusive 15-year purchase power agreements, and after
giving effect to the closure of Zion Station and certain plant re-ratings).
After deducting summer limitations of 538,000 kilowatts, ComEd considers its
net summer generating capability to be 20,198,000 kilowatts. The net
generating capability available for operation at any time may be less due to
regulatory restrictions, fuel restrictions, efficiency of cooling facilities
and generating units being temporarily out of service for inspection,
maintenance, refueling, repairs or modifications required by regulatory
authorities. See "Regulation--Nuclear" below for information concerning
outages at certain of ComEd's nuclear generating stations.
ComEd's highest peak load experienced to date occurred on August 14, 1995
and was 19,212,000 kilowatts; and the highest peak load experienced to date
during a winter season occurred on January 18, 1994 and was 14,179,000
kilowatts. ComEd's kilowatthour sales and generation are generally higher,
primarily during the summer periods but also during the winter periods, when
temperature extremes create demand for either summer cooling or winter
heating.
CONSTRUCTION PROGRAM
Utility Operations
ComEd has a construction program for the year 1998, which consists
principally of improvements to its existing nuclear and other electric
production, transmission and distribution facilities. It does not include
funds to add new generating capacity to ComEd's system. The program, as
currently approved by ComEd, includes the following estimated expenditures
(excluding nuclear fuel expenditures of approximately $160 million).
<TABLE>
<CAPTION>
1998
----
(MILLIONS
OF DOLLARS)
<S> <C> <C> <C> <C>
Production................................................ $425
Transmission and Distribution............................. 415
General................................................... 90
----
$930
----
----
</TABLE>
Such estimated expenditures include $130 million toward the replacement of
the steam generators at ComEd's Braidwood Unit 1 and Byron Unit 1 nuclear
generating units by year-end 1998. The total replacement cost is estimated to
be $455 million, of which approximately $295 million has been incurred through
December 31, 1997 and $30 million will be incurred in 1999.
ComEd and the Indiana Company's construction expenditures during 1997 were
$970 million.
6
<PAGE>
ComEd's gross investment in nuclear generating capacity (excluding nuclear
fuel) is $13.4 billion at December 31, 1997 (after reflecting the closure of
Zion Station), and ComEd expects that investment to be approximately $13.9
billion by the end of 1998 as a result of improvements. Gross additions to and
retirements from utility property, excluding nuclear fuel, of ComEd and the
Indiana Company for the five years ended December 31, 1997 were $4,352 million
and $1,686 million, respectively (after reflecting the closure of Zion Station
and the sale of State Line Station).
ComEd periodically reviews its projection of probable future demand for
electricity in its service territory. It currently projects average annual
growth of 1.75% in annual peak load and 1.5% in total annual electricity
requirements, excluding sales to other utilities. ComEd's forecasts of peak
load indicate a need for additional resources to meet demand, either through
generating capacity, equivalent purchased power or the development of
additional demand-side management resources, in 1998 and each year thereafter.
However, ComEd believes that adequate resources, including cost-effective
demand-side management resources, non-utility generation resources and other-
utility power purchases, could be obtained in sufficient quantities to meet
such forecasted needs.
The 1998 construction program includes approximately $2 million for
environmental control facilities. Expenditures on such facilities were $18
million in 1997 and $16 million for each of the years 1996 and 1995.
Purchase commitments for ComEd, principally related to construction and
nuclear fuel, approximated $286 million at December 31, 1997. In addition,
ComEd's estimated commitments for the purchase of coal are as follows:
<TABLE>
<CAPTION>
CONTRACT PERIOD COMMITMENT(1)
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<S> <C> <C>
Black Butte Coal Co............................... 1998-2000 $ 679
Decker Coal Co. .................................. 1998-2014 427
Other commitments ................................ 1998 25
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$1,131
======
</TABLE>
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(1) In millions of dollars, excluding transportation costs. No
estimate of future costescalation has been made.
For additional information concerning these coal contracts and ComEd's fuel
supply, see "Fuel Supply" below and Notes 1 and 23 of Notes to Financial
Statements in the January 30, 1998 Form 8-K Reports, which are incorporated
herein by reference.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations" subcaption "Liquidity and Capital Resources--Utility
Operations--Capital Resources" in the January 30, 1998 Form 8-K Reports, which
are incorporated herein by reference, for information regarding the capital
resources of ComEd.
Unregulated Operations
Unicom has approved capital expenditures for 1998 of approximately $92
million for UT Holdings, primarily related to an expansion of two of its four
Chicago district cooling facilities, the related distribution piping and
plants in other cities. As of December 31, 1997, UT Holdings' purchase
commitments, principally related to construction, were approximately $11
million and Unicom Energy Services' purchase commitments were approximately $8
million.
Unicom expects to obtain funds to invest in its unregulated subsidiaries
principally from dividends received on its ComEd common stock and from bank
borrowings. The availability of ComEd's dividends to Unicom is dependent on
ComEd's financial performance and cash position. Other forms of financing by
ComEd to Unicom or the unregulated subsidiaries of Unicom, such as loans or
additional equity investments, none of which is expected, would be subject to
prior approval by the ICC.
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Unicom Enterprises has a $200 million credit facility which will expire in
November 1999, of which $40 million was unused as of December 31, 1997. The
credit facility can be used by Unicom Enterprises to finance investments in
unregulated businesses and projects, including UT Holdings and Unicom Energy
Services, and for general corporate purposes. The credit facility is
guaranteed by Unicom and includes certain covenants with respect to Unicom 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 13 of
Notes to Financial Statements in Unicom's January 30, 1998 Form 8-K Report,
which is incorporated herein by reference, for additional information
regarding certain covenants with respect to Unicom and Unicom Enterprises'
operations.
RATE MATTERS
In January 1995, the ICC issued its Rate Order in the proceedings relating
to ComEd's February 1994 rate increase request. The Rate Order provided, among
other things, for an increase in ComEd's total revenues of approximately $302
million (excluding add-on revenue taxes) on an annual basis. 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 a result of a May 30, 1997 decision of the Illinois Appellate
Court, the Rate Order has been remanded to the ICC for the purpose of
providing further analysis on two issues: (i) the manner in which certain
costs are recovered and which customers should pay those costs, and (ii) the
proper rate of return on common equity for ComEd. ComEd believes that the ICC
can satisfy the Appellate Court's remand directions on the basis of the
existing record from the ICC proceedings which led to the Rate Order. An ICC
Hearing Examiner issued a proposed order in January 1998 which, if adopted by
the ICC, would uphold the Rate Order and the associated $302 million revenue
increase on an annual basis. A decision is expected early in the second
quarter of 1998. See Note 4 of Notes to Financial Statements in the January
30, 1998 Form 8-K Reports, which are incorporated herein by reference, for
additional information.
See "Changes in the Electric Utility Industry--The 1997 Act" above for
information regarding the 1997 Act.
FUEL SUPPLY
The kilowatthour generation of ComEd and the Indiana Company for 1997 was
provided from the following fuel sources: nuclear 57%, coal 39% and natural
gas 4%. The lower nuclear generation as a percentage of total generation for
1997, as compared to recent prior years, is primarily due to outages at
certain of ComEd's nuclear generating stations. See "Regulation--Nuclear"
below for information regarding outages at certain of ComEd's nuclear
generating stations.
Nuclear Fuel
ComEd has uranium concentrate inventory and supply contracts sufficient to
meet all of its uranium concentrate requirements through 1999 and portions of
its uranium concentrate requirements for periods beyond 1999. ComEd's
contracted conversion services are sufficient to meet all of its uranium
conversion requirements through 1998 and portions of 1999. All of ComEd's
enrichment requirements have been contracted through 2003 and portions of its
enrichment requirements for periods beyond 2003. Commitments for fuel
fabrication have been obtained for ComEd's nuclear units at least through
2005. ComEd does not anticipate that it will have any difficulty in
negotiating contracts for uranium concentrates, conversion, enrichment and
fuel fabrication services for its remaining requirements.
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 $16
million per
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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 "Nuclear Fuel" in the January 30, 1998 Form 8-K
Reports, which are incorporated herein by reference, for information related
to the accounting for such costs.
See "Regulation--Nuclear" below for information concerning the disposal of
radioactive waste.
Coal
ComEd burns low sulfur western coal at all of its coal-fired stations.
ComEd's present policy is to maintain a coal inventory of 30 to 45 days of
high utilization. As of February 28, 1998, coal inventories approximated 45
days. The average cost per ton of coal consumed by ComEd and the Indiana
Company for the years 1997, 1996 and 1995, including transportation charges,
was $38.47, $41.16 and $41.72, respectively.
Compared to other utilities, ComEd has relatively low average fuel costs as
a result of its 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 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 December 31, 1997, ComEd
had coal reserves of $282 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, see "Construction Program--Utility Operations" above. For
additional information regarding coal reserves, see Note 1 of Notes to
Financial Statements in the January 30, 1998 Form 8-K Reports, which are
incorporated herein by reference.
Oil and Gas
ComEd's fast-start peaking units use middle distillate oils. Approximately
half of this capacity can also be fueled with natural gas. ComEd's 2,698,000
kilowatt Collins Station is fueled with natural gas and residual oil. ComEd
purchases oil and gas in the spot market as needed. The conversion of four of
the five units at Collins Station to dual fuel capability (residual oil and
natural gas) was completed during 1994 and 1996 and conversion of the fifth
unit was completed in 1997. ComEd has a contract for the delivery and storage
of natural gas from gas pipelines to Collins Station, which expires in 2003.
Fuel Adjustment Clause
The FAC provided 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 had recorded under or overrecoveries of allowable fuel and
energy costs which, under the FAC, were recoverable or refundable in
subsequent months. Pursuant to an option contained in the 1997 Act, ComEd
filed a tariff on December 16, 1997 to eliminate its FAC as of January 1,
1997. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations," subcaption "Changes in the Electric Utility Industry--
Accounting Effects Related to the 1997 Act" in the January 30, 1998 Form 8-K
Reports, which are incorporated herein by reference, for additional
information regarding the effects of eliminating the FAC. Also see
"Regulation--Nuclear" below concerning FAC reconcililation proceedings for the
years 1994 and 1996.
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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. ComEd is subject to regulation by
the ICC as to rates and charges, issuance of most of its securities, service
and facilities, classification of accounts, transactions with affiliated
interests, as defined in the Illinois Public Utilities Act, and other matters.
In addition, the ICC in certain of its rate orders has exercised jurisdiction
over ComEd's environmental control program. See "Changes in the Electric
Utility Industry--The 1997 Act" above for information regarding the 1997 Act.
ComEd is subject to the jurisdiction of the FERC with respect to the
issuance of certain of its securities. ComEd is also subject to the
jurisdiction of the FERC and the DOE under the Federal Power Act with respect
to certain other matters, including the sale for resale of electric energy and
the transmission of electric energy in interstate commerce, and to the
jurisdiction of the DOE with respect to the disposal of spent nuclear fuel and
other radioactive wastes. See "Changes in the Electric Utility Industry--
Federal Regulation" above for information regarding the FERC Order and the
Federal Energy Policy Act of 1992.
Unicom is a public utility holding company, as defined by the Public Utility
Holding Company Act of 1935, because of its majority ownership of ComEd's
common stock, and ComEd is a public utility holding company as defined in such
Act because of its ownership of the Indiana Company. However, both Unicom and
ComEd are exempt from most provisions of such Act.
The Indiana Company, an "affiliated interest" of ComEd within the meaning of
the Illinois Public Utilities Act, is subject to regulation by the Indiana
Utility Regulatory Commission and to the jurisdiction of the FERC, the DOE and
federal and state of Indiana pollution control and other agencies.
Nuclear
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. That contract provided for acceptance by the DOE of such materials
to begin in January 1998; however, that date was not met by the DOE and is
expected to be delayed significantly. The DOE's current estimate for opening a
facility to accept such waste is 2010. 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.
Dresden Station has spent fuel capacity through the year 2001, Zion Station
has capacity for all its spent fuel, Quad Cities Station has spent fuel
capacity through 2006 and all of the other stations have spent fuel capacity
through at least 2008. ComEd is developing on site dry cask spent fuel storage
for Dresden Unit 1, which is expected to be funded by the external
decommissioning trusts. See "Depreciation and Decommissioning" under Note 1 of
Notes to Financial
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Statements in the January 30, 1998 Form 8-K Reports, which are incorporated
herein by reference, for information regarding the external decommissioning
trusts. The Dresden Unit 1 dry storage canisters will meet the federal
requirements for both storage and transportation of spent nuclear fuel. The
storage canisters could be used by 1999. Meeting spent fuel storage
requirements beyond the years stated above could require new and separate
storage facilities.
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. 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 none is currently expected to be operational until after the year
2011. ComEd has temporary on-site storage capacity at its nuclear generating
stations for a limited amount of low-level radioactive waste and has been
shipping such waste to a low-level radioactive waste site in Barnwell, South
Carolina. ComEd anticipates the possibility of continuing difficulties in
disposing of low-level radioactive waste. ComEd continues to evaluate its
options relating to the disposal of low-level radioactive waste.
ComEd is subject to the jurisdiction of the NRC with respect to its nuclear
generating stations. The NRC regulations control the granting of permits and
licenses for the construction and operation of nuclear generating stations and
subject such stations to continuing review and regulation. The NRC review and
regulatory process covers, among other things, operations, maintenance, and
environmental and radiological aspects of such stations. The NRC may modify,
suspend or revoke licenses and impose civil penalties for failure to comply
with the Atomic Energy Act, the regulations under such Act or the terms of
such licenses.
Nuclear operations have been, and remain, an important focus of ComEd--given
the impact of such operations on overall O&M expenditures and the ability of
nuclear power plants to produce electric energy at a relatively low marginal
cost. ComEd operates a large number of nuclear plants, ranging from the older
Dresden and Quad Cities Stations to the more recently completed LaSalle, Byron
and Braidwood Stations, and is intent upon safe, reliable and efficient
operation. These plants were constructed over a period of time in which
technology, construction procedures and regulatory initiatives and oversight
have evolved, with the result that older plants generally require greater
attention and resources to meet regulatory requirements and expectations, as
well as to maintain operational reliability. As discussed in "Changes in the
Electric Utility Industry--ComEd's Response to Regulatory Changes" above,
ComEd has ceased nuclear generation operations at its Zion Station.
ComEd's Dresden, Zion and LaSalle nuclear generating stations are currently
on the NRC's list of plants that require increased regulatory scrutiny by the
NRC. Dresden Station has been on the list since 1992 and LaSalle and Zion
Stations were added in January 1997. On January 21, 1998, the NRC stated in a
public meeting that although Dresden Station has demonstrated sustained
improved performance that would warrant removal from the list, continued
evidence of cyclical and inconsistent performance at ComEd's other nuclear
generating stations indicated removal of Dresden Station from the list would
not be appropriate at that time. The NRC also acknowledged improvements at
LaSalle Station but concluded that a substantial amount of work remains and
the plant should remain on the list. The NRC also stated that, based on a
determination made prior to the announcement of the cessation of power
operations at the station, Zion should remain on the list. The listing of the
plants does not prevent ComEd from operating the generating units; however, it
does mean that the NRC will devote additional resources to monitoring ComEd's
operating performance and that ComEd will need to work to demonstrate to the
NRC the sustainability of improvements which it believes it has undertaken and
is continuing to implement. Also at the meeting, the NRC noted a declining
performance trend at Quad Cities Station. In a meeting on March 3, 1998, the
NRC stated that weaknesses were observed with respect to certain operations,
maintenance and engineering activities
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at Quad Cities Station. The NRC has indicated that it is monitoring ComEd's
ability to manage its nuclear operations in their entirety and that the
performance at any one facility will be viewed by the NRC in context with the
performance of ComEd's nuclear generating group as a whole.
In January 1997, the NRC took the unusual step of requiring ComEd to submit
information to allow the NRC to determine what actions, if any, should be
taken to assure that ComEd can safely operate its six nuclear generating
stations (prior to the permanent cessation of nuclear generation operations at
Zion Station) while sustaining performance improvement at each site. The
request also required ComEd to submit information regarding the criteria that
it has established, or planned to establish, to measure performance and to
explain ComEd's proposed actions if the criteria were not met. The request
stated the NRC staff's concerns with the "cyclical safety performance of ComEd
nuclear stations," noting the presence on the list of plants that require
increased regulatory scrutiny by the NRC of Dresden, LaSalle and Zion Stations
at various times during the past 10 years. It also noted concerns regarding
"ComEd's ability to establish lasting and effective programs that result in
sustained performance improvement." The problems identified by the NRC are
consistent with weaknesses that had been identified in station self-
assessments initiated by ComEd, and management had already undertaken to
develop and implement programs designed to address these issues. ComEd
submitted a response to the NRC on March 28, 1997 and the NRC indicated in an
April 25, 1997 public meeting with representatives of ComEd management that
ComEd's response was generally adequate to demonstrate ComEd's ability to
operate its nuclear generating stations while sustaining performance
improvements. In a November 4, 1997 meeting with the NRC staff, the NRC
indicated that it believes ComEd's nuclear performance has shown improvement,
but that it is too early to conclude that lasting improvement has been
achieved. The NRC noted, as an exception to ComEd's general improving and
sustained performance in its nuclear operations, concerns regarding ComEd's
engineering efforts to resolve longstanding fire protection issues at the Quad
Cities Station. The NRC and representatives of ComEd's management have met and
will continue to meet periodically in the future, to follow-up on these
matters.
INPO, a nuclear power industry funded organization, also has been critical
of ComEd's nuclear operations and the progress made by ComEd at correcting
problems INPO previously identified. In the past, INPO has raised concerns
with respect to management and performance of ComEd's nuclear operations,
including accountability and the effectiveness of efforts aimed at engaging
the workforce in the improvement process. ComEd continues to address INPO's
concerns.
ComEd has devoted, and intends to continue to devote, significant resources
to the management and operations of its nuclear generating stations. Over the
past several years, it has increased and reinforced management with managers
drawn from other utilities which have resolved similar operational and
performance issues, including the appointment of a new Chief Nuclear Officer
in late 1997. It also has sought to identify, anticipate and address operating
and performance issues in a safe, cost-effective manner, while seeking to
improve the availability and capacity factors of its nuclear generating units.
ComEd's activities, with respect to its nuclear generating stations, have
included improvements in operating and personnel procedures and repair and
replacement of equipment and can result in longer unit outages. LaSalle Units
1 and 2 and Quad Cities Units 1 and 2 are currently not operating. It
currently is expected that LaSalle Unit 1 will restart by the end of the third
quarter of 1998 and LaSalle Unit 2 is expected to restart by the end of the
first quarter of 1999. Both units at Quad Cities Station are expected to
return to service by approximately the end of the second quarter of 1998. In
each case the restart of these units requires the resolution of issues with
the NRC.
The LaSalle Station outage and an outage at Zion Station were part of
several outages of nuclear and fossil generating stations that several
utilities operating in the Midwestern power grid (including ComEd) were
expecting and experienced during 1997. Although ComEd met its customers'
electricity
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demands, the expectation of the NERC, prior to the beginning of the summer,
had been that there could have been electric energy shortages during summer
peak demand periods due to generating station outages in the Midwestern power
grid and transmission limitations on delivering power from neighboring
systems. In response to these regional circumstances and expectations, ComEd
increased the availability of its remaining nuclear and fossil generating
capacity, reinforced transmission capacity, negotiated the purchase of power
and related transmission service from third parties, and worked with a number
of customers to manage the use and demand for power. ComEd is evaluating and
the NERC will be analyzing electric reliability and the potential for electric
energy shortages for the summer of 1998 in light of the potential for
continued outages of nuclear plants operated by ComEd and other utilities in
the Midwestern power grid.
Generating station availability and performance during a year may be issues
in fuel reconciliation proceedings in assessing the prudence of fuel and
purchased power costs during such year. Final ICC orders have been issued in
fuel reconciliation proceedings for years prior to 1994 and for the year 1995.
In 1996, an intervenor filed testimony in the fuel reconciliation proceeding
for 1994 seeking a refund of approximately $90 million relating to nuclear
station performance. In March 1998, the ICC Staff also filed testimony in the
fuel reconciliation proceeding for 1994 proposing a refund of $36 million. The
1997 Act provides that the fuel reconciliation proceedings for 1994 and 1996
must be concluded by the end of 1998. If refunds are required in these
proceedings, the refunds could have a material adverse effect on results of
operations. The 1997 Act also provides that, because ComEd eliminated its FAC
effective January 1, 1997, the ICC shall not conduct a fuel reconciliation
proceeding for the year 1997 or any subsequent years. See "Changes in the
Electric Utility Industry" and "Fuel Supply--Fuel Adjustment Clause" above for
information regarding the elimination of ComEd's FAC.
ComEd has completed replacement of the steam generators at Byron Unit 1 and
is replacing the steam generators at Braidwood Unit 1. See "Construction
Program--Utility Operations" above for additional information.
Based on ComEd's most recent study approved by the ICC, decommissioning
costs, including the cost of decontamination and dismantling, are estimated to
aggregate $4.4 billion in current-year (1998) dollars, including a contingency
allowance. ComEd estimates it will expend approximately $11.6 billion,
including a 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, as well as changes in the assumptions used
in making such estimates, including changes in technology, available
alternatives for the disposal of nuclear waste, and inflation. See Note 1 of
Notes to Financial Statements under "Depreciation and Decommissioning" in the
January 30, 1998 Form 8-K Reports, which are incorporated herein by reference,
for additional information regarding decommissioning costs.
During the year 1997, civil penalties were imposed on ComEd on ten occasions
for violations of NRC regulations in amounts aggregating $1,390,000. Since
January 1, 1998, civil penalties were imposed on ComEd on three occasions for
violations of NRC regulations in amounts aggregating $495,000. To ComEd's
knowledge, there are two current enforcement issues outstanding and under
review by the NRC.
The IDNS has jurisdiction over certain activities in Illinois relating to
nuclear power and safety, and radioactive materials. Effective June 1, 1987,
the IDNS replaced the NRC as the regulator and licensor of certain source, by-
product and special nuclear material in quantities not sufficient to form a
critical mass, including such material contained in various measuring devices
used at fossil-fuel power plants. The IDNS does not regulate ComEd's nuclear
generating stations. The IDNS has promulgated
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regulations which are substantially similar to the corresponding federal
regulations. The IDNS also has authority to license a low-level radioactive
waste disposal facility and to regulate alternative methods for disposing of
materials which contain only trace amounts of radioactivity.
The uranium mining and milling operations of Cotter are subject to
regulation by the state of Colorado and the NRC.
Environmental
ComEd is subject to regulation regarding environmental matters by the United
States and by the states of Illinois, Iowa and, in the case of Cotter,
Colorado, and by local jurisdictions where ComEd operates its facilities. The
IPCB has jurisdiction over environmental control in the state of Illinois,
which includes authority to regulate air, water and noise emissions and solid
waste disposal, together with the Illinois EPA, which enforces regulations of
the IPCB and issues permits in connection with environmental control. The
U.S. EPA administers certain federal statutes relating to such matters. The
IPCB has published a proposed rule under which it would have the power to
regulate radioactive air pollutants under the Illinois Environmental
Protection Act and the Federal Clean Air Act Amendments of 1977.
Air quality regulations, promulgated by the IPCB 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 fuel
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 either has NPDES permits for all
of its generating stations or has pending applications for such permits under
the current delegation of the program to the Illinois EPA. 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.
The Clean Air Amendments require reductions in nitrogen oxide emissions from
ComEd's fossil fuel generating units. In January 1996, the U.S. EPA issued a
final rule exempting existing sources inside the Chicago ozone non-attainment
area from further nitrogen oxide emission reductions; however, this exemption
is limited pending the finalization of the U.S. EPA Clean Air Act, Section
110. The U.S. EPA issued a proposed rule in late 1997 which would mandate
reductions in nitrogen oxide emissions to address ozone transport problems in
much of the eastern United States. In its current form, the proposed rule
would require electric utility sources in a 22-state region to meet a nitrogen
oxide emission limitation of 0.15 lbs/MBtu. Under the Acid Rain program, the
U.S. EPA prepared nitrogen oxide emission regulations that apply to all of
ComEd's boilers with a compliance date of January 1, 2000. These regulations
include limits for cyclone and tangentially fired boilers of 0.86 and 0.40
lbs/mm Btu, respectively.
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
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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, 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
(1998) dollars. It is expected that the costs associated with investigation
and remediation of former MGP sites will be incurred over a period not to
exceed 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 $25 million has been included in other noncurrent liabilities on
the Consolidated Balance Sheets in the January 30, 1998 Form 8-K Reports,
which are incorporated herein by reference, as of December 31, 1997 and 1996,
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, 1997 and
1996, a reserve of $8 million has been included in other noncurrent
liabilities on the Consolidated Balance Sheets in the January 30, 1998 Form 8-
K Reports, which are incorporated herein by reference, representing ComEd's
estimate of the liability associated with cleanup costs of remediation sites
other than former MGP sites. Approximately half of this reserve relates to
anticipated cleanup costs associated with a property formerly used as a
tannery which was purchased by ComEd in 1973. 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 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 or has caused a diminution in property values
of land adjacent to these facilities. 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.
15
<PAGE>
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 these Annual
Reports on Form 10-K, which could have such an effect.
See "Item 3. Legal Proceedings" regarding Cotter.
EMPLOYEES
Unicom and its subsidiary companies had approximately 16,704 employees as of
December 31, 1997. ComEd had approximately 16,663 employees as of December 31,
1997 of which approximately 9,140 ComEd employees were represented by IBEW
Local 15.
A new Collective Bargaining Agreement with Local 15 became effective August
25, 1997, and provides, among other things, for a term expiring on March 31,
2001. A previously negotiated general wage increase of 1.5% was effective
April 1, 1997, for all employees covered by the Collective Bargaining
Agreement. Additionally, a general wage increase of 1.5% was effective October
13, 1997, and was applied on a retroactive basis to March 31, 1997. For each
of the remaining three years, a 3% general wage increase will be granted to
employees covered by the Collective Bargaining Agreement, effective the
beginning of the pay period that includes April 1st of each such year.
The supplemental agreements covering life insurance, savings and investment
plan, and health care plans are effective through March 31, 2001. The
supplemental agreement covering pension benefits is effective through
September 30, 1999.
INTERCONNECTIONS
ComEd has interconnections for the transmission of electricity with Central
Illinois Light Company, Central Illinois Public Service Company, Illinois
Power Company, Indiana Michigan Power Company (a subsidiary of American
Electric Power Company), Interstate Power Company, MidAmerican Energy Company,
Northern Indiana Public Service Company, Wisconsin Electric Power Company and
Wisconsin Power and Light Company for the purpose of exchanging energy and for
other forms of mutual assistance.
ComEd and 14 other Midwest power systems are regular members of MAIN, which
also includes 23 associate members and 5 affiliate members. The members have
entered into an agreement to work together to ensure the reliability of
electric power production and transmission throughout the area they serve.
ComEd joined with eight Midwestern utilities to form a regional Midwest ISO
in January 1998. See "Changes in the Electric Utility Industry--ComEd's
Response to Regulatory Changes" for additional information.
FRANCHISES
ComEd's franchises are, in general, deemed adequate to permit it to engage
in the business it now conducts.
In the city of Chicago, ComEd operates under a nonexclusive electric
franchise ordinance, effective January 1, 1992, and continuing in force until
December 31, 2020. ComEd derives
16
<PAGE>
approximately one-third of its ultimate consumer revenues from customers
located within the city of Chicago. See "Item 3. Legal Proceedings" regarding
an arbitration proceeding initiated by the City of Chicago under its franchise
agreement with ComEd.
The electric business outside of the city of Chicago is conducted in
municipalities under nonexclusive franchises and, where required, under
certificates of convenience and necessity granted by the ICC. The following
tabulation summarizes, as of December 31, 1997, the expiration dates of the
electric franchises held in the 396 municipalities outside of the city of
Chicago capable of granting franchises and in which ComEd currently provides
electric service.
<TABLE>
<CAPTION>
ESTIMATED
NUMBER OF AGGREGATE
FRANCHISE EXPIRATION PERIODS MUNICIPALITIES POPULATION
- ---------------------------- -------------- ----------
<S> <C> <C>
1998-2006............................................. 3 89,000
2007-2017............................................. 10 95,000
2018-2028............................................. 3 4,000
2029-2039............................................. 1 *
2040 and subsequent years............................. 376 4,127,000
No stated time limit.................................. 3 61,000
</TABLE>
- --------
*Less than 1,000 people.
17
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The effective year of election of the officers to their present positions
and the prior positions they have held with Unicom or other companies, since
January 1, 1993, are described below.
<TABLE>
<CAPTION>
NAME AND AGE POSITION
------------- -------------------------------------------------------------
<S> <C>
*John W. Chairman, President and Chief Executive Officer of Unicom and
Rowe, 52 ComEd since March 1998; previously President and Chief Exec-
utive Officer of New England Electric System.
*Oliver D. Executive Vice President and President and Chief Nuclear Of-
Kingsley, ficer--Nuclear Generation Group of ComEd since October 1997;
Jr., 55 previously Chief Nuclear Officer at the Tennessee Valley Au-
thority.
*Robert J. Executive Vice President of ComEd since January 1997 and
Manning, 55 President--Fossil Generation Group of ComEd since October
1997; previously Senior Vice President of ComEd.
*John C. Senior Vice President and Chief Financial Officer of Unicom
Bukovski, 55 and ComEd since October 1997; previously Vice President and
Chief Financial Officer of Unicom and ComEd.
*Paul D. Senior Vice President of ComEd since October 1997; previously
McCoy, 47 Vice President of ComEd.
Donald A. Senior Vice President of Unicom since 1995; President and
Petkus, 56 Chief Executive Officer of UT Holdings since 1997 and Unicom
Thermal Technologies Inc. since 1995, and Senior Vice Presi-
dent of ComEd.
*S. Gary Senior Vice President of Unicom and ComEd since October 1997;
Snodgrass, Vice President of Unicom and ComEd, September 1997 to Octo-
46 ber 1997; previously Vice President of USG Corporation.
*Pamela B. Senior Vice President and General Counsel of Unicom and ComEd
Strobel, 45 since October 1997; previously Vice President and General
Counsel of ComEd.
*Michael J. Senior Vice President of ComEd since 1993; previously Vice
Wallace, 50 President of ComEd.
John T. Vice President of Unicom and ComEd since 1996; previously
Costello, 49 Manager of Corporate Relations of ComEd, 1995 to 1996 and
Manager of Public Affairs of ComEd.
*William H. Vice President of ComEd.
Downey, 53
Ruth Ann M. Vice President and Treasurer of Unicom and ComEd since Sep-
Gillis, 43 tember 1997; previously Vice President, Chief Financial Of-
ficer and Treasurer of the University of Chicago Hospitals
and Health System from 1996 to 1997 and Senior Vice Presi-
dent and Chief Financial Officer of American National Bank
and Trust Company.
Thomas J. Vice President of Unicom and ComEd since 1996; previously
McCaffrey, Vice President of Mercer Management Consulting, 1995 to 1996
53 and Corporate Senior Vice President of First Chicago Corpo-
ration.
*Robert E. Comptroller of Unicom and ComEd since July 1997; previously
Berdelle, 42 held various financial reporting and analysis positions
within ComEd.
David A. Secretary of Unicom and ComEd since 1994 and 1989, respec-
Scholz, 56 tively.
</TABLE>
--------
* Executive Officers for Section 16 reporting purposes.
The present term of office of each of the above executive officers extends
to the first meeting of Unicom's Board of Directors after the next annual
election of Directors scheduled to be held on May 28, 1998.
There are no family relationships among the executive officers, directors
and nominees for director of Unicom.
18
<PAGE>
OPERATING STATISTICS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Operating Revenues (thousands of dol-
lars)(1):
Residential.............................. $2,552,742 $2,541,873 $2,621,038
Small commercial and industrial.......... 2,153,113 2,113,716 2,073,998
Large commercial and industrial.......... 1,467,574 1,445,708 1,425,784
Public authorities....................... 505,907 503,004 487,142
Electric railroads....................... 29,785 29,651 26,894
Provisions for revenue refunds--ultimate
consumers............................... (45,470) -- --
Sales for resale......................... 336,480 235,041 207,256
Other revenues........................... 82,891 68,031 67,933
---------- ---------- ----------
Total................................. $7,083,022 $6,937,024 $6,910,045
========== ========== ==========
Sales (millions of kilowatthours):
Residential.............................. 22,151 22,310 23,303
Small commercial and industrial.......... 25,860 25,131 25,313
Large commercial and industrial.......... 24,074 23,896 23,777
Public authorities....................... 7,322 7,336 7,158
Electric railroads....................... 418 424 390
Sales for resale......................... 15,679 12,178 11,412
---------- ---------- ----------
Total................................. 95,504 91,275 91,353
========== ========== ==========
Sources of Electric Energy (millions of
kilowatthours):
Generation--
Nuclear................................. 49,136 62,610 70,261
Fossil.................................. 36,604 30,315 26,231
Fast-start peaking units................ 121 123 116
---------- ---------- ----------
Net generation........................ 85,861 93,048 96,608
Purchased power.......................... 16,672 6,129 2,475
Company use and losses................... (7,029) (7,902) (7,730)
---------- ---------- ----------
Total................................. 95,504 91,275 91,353
========== ========== ==========
Cost of Fuel Consumed (per million Btu):
Nuclear.................................. $0.57 $0.53 $0.52
Coal..................................... $2.28 $2.41 $2.43
Oil...................................... $3.90 $3.41 $3.06
Natural gas.............................. $2.69 $2.75 $1.85
Average all fuels........................ $1.33 $1.17 $1.05
Peak Load (kilowatts)..................... 18,497,000 18,916,000 19,212,000
Number of Customers (at end of year):
Residential.............................. 3,123,364 3,102,101 3,079,381
Small commercial and industrial.......... 291,143 289,803 288,848
Large commercial and industrial.......... 1,566 1,550 1,539
Public authorities....................... 12,180 12,142 12,039
Electric railroads and resale............ 53 46 26
---------- ---------- ----------
Total................................. 3,428,306 3,405,642 3,381,833
========== ========== ==========
Average Annual Revenue Per Residential
Customer
(excluding light bulb service)........... $816.91 $819.52 $852.18
Average Use Per Residential Customer
(kilowatthours).......................... 7,108 7,213 7,598
Average Revenue Per Kilowatthour:
Residential (excluding light bulb serv-
ice).................................... 11.49c 11.36c 11.22c
Small commercial and industrial.......... 8.33c 8.41c 8.19c
Large commercial and industrial.......... 6.10c 6.05c 6.00c
</TABLE>
- --------
(1) See "Rate Matters" above.
19
<PAGE>
YEAR 2000 CONVERSION
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations," subcaption "Liquidity and Capital Resources--Year 2000
Conversion" in the January 30, 1998 Form 8-K Reports, which are incorporated
herein by reference, for information regarding Unicom and ComEd's Year 2000
conversion.
MARKET RISKS
ComEd is exposed to market risk due to changes in interest rates and changes
in the market price for electricity. Exposure for interest rate changes
relates to its long-term debt and preferred equity obligations. Exposure to
electricity market price risk relates to forward activities taken to
effectively manage the supply of, and demand for, the electric generation
capability of ComEd's generating plants. ComEd does not currently utilize
derivative commodity or financial instruments for trading or speculative
purposes. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations," subcaption "Liquidity and Capital Resources--Interest
Rate Exposure and Market Price Exposure" in the January 30, 1998 Form 8-K
Reports, which are incorporated herein by reference, for additional
information.
FORWARD-LOOKING INFORMATION
Except for historical data, the information contained in these Annual
Reports constitutes forward-looking statements. Forward-looking statements are
inherently uncertain and subject to risks. Such statements should be viewed
with caution. Actual results or experience could differ materially from the
forward-looking statements as a result of many factors. Forward-looking
statements in this report include, but are not limited to: (1) statements
regarding expectations of revenue reductions as a result of the 1997 Act in
"Item 1. Business," subcaption "Changes in the Electric Utility Industry--The
1997 Act" (2) statements regarding estimated capital expenditures in "Item 1.
Business," subcaption "Construction Program," (3) statements regarding the
estimated return to service of certain nuclear generating units and the costs
of purchased power in "Item 1. Business," subcaption "Regulation--Nuclear,"
(4) statements regarding the costs of decommissioning nuclear generating
stations in "Item 1. Business," subcaption "Regulation--Nuclear," (5)
statements regarding cleanup costs associated with MGPs and other remediation
sites in "Item 1. Business," subcaption "Regulation--Environmental" and (6)
"Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Item 8. Financial Statements and Supplementary
Data" which, in the case of Unicom, incorporate portions of Unicom's January
30, 1998 Form 8-K Report, which is incorporated herein by reference, which
contain forward-looking information as described therein, and in the case of
ComEd, incorporate portions of ComEd's January 30, 1998 Form 8-K Report, which
is incorporated herein by reference, which contain forward-looking information
as described therein. Management cannot predict the course of future events or
anticipate the interaction of multiple factors beyond management's control and
their effect on revenues, project timing and costs. The statements regarding
revenue reductions are subject to unforeseen developments in the market for
electricity in Illinois resulting from regulatory changes. The statements
regarding estimated capital expenditures, estimated return to service of
nuclear generation units, decommissioning costs and cleanup costs are subject
to changes in the scope of work and manner in which the work is performed and
consequent changes in the timing and level of the projected expenditure, and
are also subject to changes in laws and regulations or their interpretation or
enforcement. The statements regarding the estimated return to service of
nuclear generating units are subject to the concurrence of the NRC with
proceeding to power operations. Unicom and ComEd make no commitment to
disclose any revisions to the forward-looking statements, or any facts, events
or circumstances after the date hereof that may bear upon forward-looking
statements.
ITEM 2. PROPERTIES.
ComEd's electric properties are located in Illinois and the Indiana
Company's electric facilities are located in Indiana. In management's
opinion, ComEd and the Indiana Company's operating properties
20
<PAGE>
are adequately maintained and are substantially in good operating condition.
The electric generating, transmission, distribution and general facilities of
ComEd and the Indiana Company represent approximately 64%, 10%, 22% and 4%,
respectively, of their gross investment in electric plant and equipment in
service (after reflecting the closure of Zion Station and the sale of State
Line Station).
The electric generating stations, substations and a portion of the
transmission rights of way of ComEd and the Indiana Company are owned in fee.
A significant portion of the electric transmission and distribution facilities
is located over or under highways, streets, other public places or property
owned by others, for which permits, grants, easements or licenses, deemed
satisfactory by ComEd, but without examination of underlying land titles, have
been obtained. The principal plants and properties of ComEd are subject to
the lien of ComEd's Mortgage dated July 1, 1923, as amended and supplemented,
under which ComEd's first mortgage bonds are issued.
The net generating capability of ComEd, as of March 1, 1998, is derived from
the following electric generating facilities:
<TABLE>
<CAPTION>
NET GENERATING CAPABILITY
STATION LOCATION (KILOWATTS)(1)
------- -------------- -------------------------
<S> <C> <C>
Nuclear--
Zion Zion --(2)
Dresden Near Morris 1,588,000
Quad Cities Near Cordova 1,183,000(3)
LaSalle County Near Seneca 2,156,000
Byron Near Byron 2,240,000
Braidwood Near Braidwood 2,240,000
Fossil--
Collins Near Morris 2,698,000
Powerton Near Pekin 1,538,000
Joliet 6 Near Joliet 314,000
Joliet 7 & 8 Near Joliet 1,025,000
Will County Near Lockport 1,092,000
Waukegan Waukegan 789,000
Crawford Chicago 542,000
Fisk Chicago 326,000
Fast-Start Peaking Units Various 1,407,000(4)
----------
Company owned net non-summer
generating capability 19,138,000
Deduct--Summer limitations 538,000
----------
Company owned net summer
generating capability 18,600,000
Add--Capability under long-term
purchase power agreements 1,598,000(5)
----------
Net summer generating capability 20,198,000
==========
</TABLE>
- --------
(1) Reflects a re-rating of certain generating stations as of February 1,
1998.
(2) On January 14, 1998, the Boards of Directors of Unicom and ComEd
authorized the permanent cessation of nuclear generation operations at
Zion Station.
(3) Excludes the 25% undivided interest of MidAmerican Energy Company in the
Quad Cities Station.
(4) Such generating units are normally designed for use primarily during the
maximum load periods of the year or during system operating emergencies.
Such units are capable of starting and coming on-line quickly.
(5) ComEd sold its Kincaid and State Line generating stations in February 1998
and December 1997, respectively. Under the terms of the sales, ComEd
entered into exclusive 15-year purchase power agreements for the output of
the plants.
Major electric transmission lines owned and in service are as follows:
<TABLE>
<CAPTION>
VOLTAGE CIRCUIT
(VOLTS) MILES
------- -------
<S> <C>
765,000........................................................... 90
345,000........................................................... 2,545
138,000........................................................... 2,737
</TABLE>
21
<PAGE>
ComEd's electric distribution system includes 38,630 pole line miles of
overhead lines and 34,579 cable miles of underground lines. A total of
approximately 1,334,930 poles are included in ComEd's distribution system, of
which about 593,390 poles are owned jointly with telephone companies.
ITEM 3. LEGAL PROCEEDINGS.
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 1994, a federal jury returned nominal dollar verdicts on eight
bellwether plaintiffs' claims in the 1989 cases, which verdicts were upheld on
appeal. The remaining claims in the 1989 actions have been settled and
dismissed. Although the 1991 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. A case relating to 14 of the plaintiffs in the 1991
cases has been set for trial in June 1998.
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 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. One individual suit
was also filed seeking damages of less than $100,000 for property losses.
On March 11, 1998 the Illinois Supreme Court approved a settlement of
ComEd's dispute regarding property tax assessments for its Byron nuclear
generating station. Under the terms of the settlement agreement, the taxing
bodies in Ogle County have agreed that taxes in future years will not exceed
certain specified amounts. ComEd will receive $8.5 million in refunds and set
aside additional credits which will be available to enforce the provisions
regarding future levies. The settlement agreement continues in effect until
2004. Appeals are still pending for cases involving ComEd's Braidwood and
LaSalle Stations, as well as other properties. These proceedings seek refunds
and reduced valuations, resulting in lower property taxes for the challenged
and subsequent years.
On November 1, 1996, the city of Chicago, Illinois filed a demand for the
appointment of an Adjustment Board before the American Arbitration Association
under the provisions of its franchise agreement with ComEd. In its demand, the
city alleges, among other items, that ComEd has failed to carry out certain
commitments related to system reliability under the franchise agreement, which
requires ComEd to budget $1 billion in expenditures for transmission and
distribution enhancements within or for the benefit of Chicago over a ten-year
period that commenced in January 1992. ComEd is disputing the city's
allegations. During the six years since January 1992, ComEd has expended
approximately $499 million to enhance electric service reliability and energy
supply for the city, and it continues to review, and budget appropriately, for
needed projects.
On June 13, 1997, the IDR issued a Notice of Tax Liability to ComEd alleging
deficiencies in Illinois invested capital tax for the years 1988 through 1994
of $22 million, plus interest of $11 million and a penalty of $2 million. On
January 2, 1998, the IDR issued a second Notice of Tax Liability also alleging
deficiencies in Illinois invested capital tax for the years 1995 through 1996
of $7 million, plus interest of $1 million. ComEd has protested the notices,
and the matter is currently pending before the IDR's Office of Administrative
Hearings. Interest will continue to accrue on the alleged tax deficiencies at
9% per annum.
22
<PAGE>
In November and December of 1997, Unicom and its directors were served with
several shareholder derivative lawsuits in state and federal court. All of the
suits assert identical claims that the directors breached fiduciary duties to
the shareholders by allegedly failing to properly supervise ComEd's nuclear
program. Each plaintiff alleges that this caused ComEd to violate NRC rules,
which has cost ComEd millions of dollars. Plaintiffs seek to have the
directors reimburse ComEd for these costs, and they seek attorneys' fees.
Unicom and ComEd's preliminary assessment of these claims is that they are
without merit.
In October 1997, six ComEd employees who were formerly located at ComEd's
nuclear station in Zion, Illinois brought state and federal claims against
ComEd, alleging that they were relocated and demoted as the result of raising
nuclear safety concerns. They claimed retaliatory demotion, retaliatory
constructive discharge and intentional infliction of emotional distress. They
requested reinstatement in their former positions, back pay, compensatory
damages, attorneys' fees and punitive damages. The aggregate amount of
punitive damages requested equals $18 million. They also filed a claim with
the U.S. Department of Labor under the Energy Reorganization Act. Unicom and
ComEd do not believe that their exposure with respect to these claims is
material.
On April 28, 1997, Tower Leasing, Inc. ("Tower") and QST Energy, Inc.
("QST") filed a complaint with the ICC alleging that ComEd violated Illinois
law and its own tariffs by preventing Tower and QST from installing a
cogeneration facility at Sears Tower in Chicago, Illinois and interconnecting
such facility with ComEd's system in that building. Tower and QST have asked
the ICC to enter an order that would essentially require ComEd to assist in
the implementation of the proposed facility. If Tower and QST are allowed to
pursue the installation and interconnection of their proposed facility, ComEd
could lose customer revenue. ComEd does not believe that it is obligated to
allow Tower and QST to implement their proposed facility. ComEd also believes
that the proposed facility would be inconsistent with Illinois law.
On November 14, 1997, the CHA filed an application with the FERC, seeking to
require ComEd to provide transmission service to some of CHA's buildings so
that those buildings may take electric service from an alternate electric
supplier. ComEd maintains that the CHA is a retail customer ineligible for
transmission service. Should this proceeding be resolved adversely to ComEd,
ComEd could lose customer revenue. This revenue loss may be offset, however,
by a stranded cost obligation the CHA would owe ComEd under FERC Order.
See "Item 1. Business," subcaptions "Rate Matters" and "Regulation" above
for information concerning other legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
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-
Trust Securities.................................... baa3 BBB- BBB-
Commercial paper.................................... P-2 A-2 D-2
</TABLE>
23
<PAGE>
As of January 1998, Moody's rating outlook on ComEd's securities is
"negative" and Duff & Phelps has classified ComEd's securities as "Rating
Watch-Down." S&P changed its rating outlook on ComEd from "stable" to
"positive" in November 1997.
The above ratings reflect only the views of such rating agencies and each
rating should be evaluated independently of any other rating. Generally,
rating agencies base their ratings on information furnished to them by the
issuing company and on investigations, studies and assumptions by the rating
agencies. There is no assurance that any particular rating will continue for
any given period of time or that it will not be changed or withdrawn entirely
if, in the judgment of the rating agency, circumstances so warrant. Such
ratings are not a recommendation to buy, sell or hold securities.
The following is a brief summary of the meanings of the above ratings and
the relative rank of the above ratings within each rating agency's
classification system.
Moody's top four long-term debt ratings (Aaa, Aa, A and Baa) are generally
considered "investment grade." Obligations rated Baa are considered as medium
grade obligations, neither highly protected nor poorly secured. Such
obligations lack outstanding investment characteristics and in fact have
speculative characteristics. A numerical modifier in Moody's system shows
relative standing within the principal rating category, with 1 indicating the
high end of that category, 2 the mid-range and 3 the low end. S&P's top four
bond ratings (AAA, AA, A and BBB) are generally considered to describe
obligations in which investment characteristics predominate. Obligations rated
BBB are regarded as having an adequate capacity to pay interest and repay
principal. Such obligations normally exhibit adequate protection parameters,
but adverse economic conditions or changing circumstances are more likely to
lead to weakened capacity to pay. A plus or minus sign in S&P's system shows
relative standing within its rating categories.
Both Moody's and S&P's preferred stock ratings represent relative security
of dividends. Moody's top four preferred stock ratings (aaa, aa, a and baa)
are generally considered "investment grade." Moody's baa rating describes a
medium grade preferred stock, neither highly protected nor poorly secured.
S&P's top four preferred stock ratings (AAA, AA, A and BBB) are generally
considered "investment grade." S&P's BBB rating applies to medium grade
preferred stock which is below A ("sound") and above BB ("lower grade").
Duff & Phelps' credit rating scale has 17 alphabetical categories, of which
ratings AAA through BBB (with AAA being the highest rating) represent
investment grade securities. Ratings of BBB+, BBB and BBB- represent the
lowest category of "investment grade" rating. This category describes
securities with below average protection factors but which are considered
sufficient for institutional investment. Considerable variability in risk
occurs during economic cycles.
Moody's P-2 rating of commercial paper is the second highest of three
possible ratings. P-2 describes a strong capacity for repayment of short-term
promissory obligations. S&P rates commercial paper in four basic categories
with A-2 being the second highest category. Duff & Phelps rates commercial
paper in three basic categories, with D-2 indicating the middle category.
Further explanations of the significance of ratings may be obtained from the
rating agencies.
Additional information required by Item 5 is incorporated herein by
reference to the "Price Range and Cash Dividends Paid Per Share of Common
Stock" on page 3 of Unicom's January 30, 1998 Form 8-K Report.
24
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by Items 6, 7 and 8 is incorporated herein by
reference to the "Summary of Selected Consolidated Financial Data" on page 3,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 4 through 20, and the audited consolidated financial
statements and notes thereto on pages 22 through 54 of Unicom's January 30,
1998 Form 8-K Report. Reference is also made to "Item 1. Business,"
subcaptions "Changes in the Electric Utility Industry," "Construction Program"
and "Regulation" for additional information.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by Item 10 relating to directors and nominees for
election as directors at Unicom's Annual Meeting of shareholders to be held on
May 28, 1998 is incorporated herein by reference to the information under the
heading "Security Ownership of Certain Beneficial Owners and Management" in
Unicom's definitive Proxy Statement ("1998 Proxy Statement") to be filed with
the SEC prior to April 30, 1998, pursuant to Regulation 14A under the
Securities Exchange Act of 1934. The information required by Item 10 relating
to executive officers is set forth in Part I of Unicom's Annual Report on Form
10-K under "Item 1. Business," subcaption "Executive Officers of the
Registrant" and under the heading "Security Ownership of Certain Beneficial
Owners and Management" in Unicom's 1998 Proxy Statement, which are
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by Item 11 is incorporated herein by reference to
the information labelled "Compensation of Directors" and the paragraphs under
the heading "Executive Compensation" (other than the paragraphs under the
heading "Corporate Governance and Compensation Committee Report on Executive
Compensation") in Unicom's 1998 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by Item 12 is incorporated herein by reference to
the stock ownership information under the heading "Security Ownership of
Certain Beneficial Owners and Management" in Unicom's 1998 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
25
<PAGE>
ANNUAL REPORT ON FORM 10-K FOR COMMONWEALTH EDISON COMPANY
PART I
ITEM 1. BUSINESS.
See Unicom's "Item 1. Business" (other than the paragraphs under the
headings "General--Unregulated Operations," "Construction Program--Unregulated
Operations" and "Executive Officers of the Registrant"), which is incorporated
herein by this reference.
EXECUTIVE OFFICERS OF THE REGISTRANT
The effective year of election of the officers to their present positions
and the prior positions they have held with ComEd or other companies, since
January 1, 1993, are described below.
<TABLE>
<CAPTION>
NAME AND AGE POSITION
---------------------------- -----------------------------------------------
<C> <S>
*John W. Rowe, 52 Chairman, President and Chief Executive Officer
of ComEd and Unicom since March 1998; previ-
ously President and Chief Executive Officer of
New England Electric System.
*Oliver D. Kingsley, Jr., 55 Executive Vice President and President and
Chief Nuclear Officer--Nuclear Generation
Group of ComEd since October 1997; previously
Chief Nuclear Officer at the Tennessee Valley
Authority.
*Robert J. Manning, 55 Executive Vice President of ComEd since January
1997 and President--Fossil Generation Group of
ComEd since October 1997; previously Senior
Vice President of ComEd.
*John C. Bukovski, 55 Senior Vice President and Chief Financial Offi-
cer of ComEd and Unicom since October 1997;
previously Vice President and Chief Financial
Officer of ComEd and Unicom.
*Paul D. McCoy, 47 Senior Vice President of ComEd since October
1997; previously Vice President of ComEd.
Donald A. Petkus, 56 Senior Vice President of ComEd since 1992 and
of Unicom since 1995; President and Chief Ex-
ecutive Officer of UT Holdings since 1997 and
Unicom Thermal Technologies Inc. since 1995.
*S. Gary Snodgrass, 46 Senior Vice President of ComEd and Unicom since
October 1997; Vice President of ComEd and
Unicom, September 1997 to October 1997; previ-
ously Vice President of USG Corporation.
*Pamela B. Strobel, 45 Senior Vice President and General Counsel of
ComEd and Unicom since October 1997; previ-
ously Vice President and General Counsel of
ComEd.
*Michael J. Wallace, 50 Senior Vice President of ComEd since 1993; pre-
viously Vice President of ComEd.
T. Oliver Butler, 46 Vice President of ComEd since July 1997; previ-
ously Purchasing Vice President of ComEd, 1994
to 1997 and European Acquisition Manager--Ge-
neva of Digital Corporation.
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
NAME AND AGE POSITION
----------------------- ----------------------------------------------------
<C> <S>
Frank M. Clark, 52 Vice President of ComEd since January 1997; previ-
ously Governmental Affairs Vice President 1996 to
January 1997 and Governmental Affairs Manager.
John T. Costello, 49 Vice President of ComEd and Unicom since 1996; pre-
viously Manager of Corporate Relations of ComEd,
1995 to 1996 and Manager of Public Affairs of
ComEd.
Louis O. DelGeorge, 50 Vice President of ComEd.
*William H. Downey, 53 Vice President of ComEd.
Ruth Ann M. Gillis, 43 Vice President and Treasurer of ComEd and Unicom
since September 1997; previously Vice President,
Chief Financial Officer and Treasurer of the Uni-
versity of Chicago Hospitals and Health System from
1996 to 1997 and Senior Vice President and Chief
Financial Officer of American National Bank and
Trust Company.
David R. Helwig, 47 Vice President of ComEd since January 1998; previ-
ously General Manager of General Electric Company's
Nuclear Services Company, 1997 to January 1998 and
Vice President at PECO Energy.
Emerson W. Lacey, 56 Vice President of ComEd.
Andrew J. Lynch, 51 Vice President of ComEd since April 1997; previously
President of First Chicago Trust Company of New
York.
Thomas J. McCaffrey, 53 Vice President of ComEd and Unicom since 1996; pre-
viously Vice President of Mercer Management Con-
sulting, 1995 to 1996 and Corporate Senior Vice
President of First Chicago Corporation.
J. Stephen Perry, 59 Vice President of ComEd since 1994; previously Se-
nior Vice President of Illinois Power Company.
James A. Small, 54 Vice President of ComEd since 1993; previously Gen-
eral Manager of Fuel Services of Georgia Power Com-
pany.
Harold Gene Stanley, 57 Vice President of ComEd since September 1997; Site
Vice President at Braidwood Station, 1996 to 1997;
previously Vice President at Pennsylvania Power and
Light Company.
*Robert E. Berdelle, 42 Comptroller of ComEd and Unicom since July 1997;
previously held various financial reporting and
analysis positions within ComEd.
David A. Scholz, 56 Secretary of ComEd and Unicom since 1989 and 1994,
respectively.
</TABLE>
--------
* Executive Officers for Section 16 reporting purposes.
The present term of office of each of the above executive officers extends to
the first meeting of ComEd's Board of Directors after the next annual election
of Directors scheduled to be held on May 28, 1998.
27
<PAGE>
There are no family relationships among the executive officers, directors
and nominees for director of ComEd.
ITEM 2. PROPERTIES.
See Unicom's "Item 2. Properties," which is incorporated herein by this
reference.
ITEM 3. LEGAL PROCEEDINGS.
See Unicom's "Item 3. Legal Proceedings," which is incorporated herein by
this reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE BY SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
See Unicom's "Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters" (other than the last paragraph thereof), which is
incorporated herein by reference.
Additional information required by Item 5 is incorporated herein by
reference to the "Cash Dividends Paid Per Share of Common Stock" on page 3 of
ComEd's January 30, 1998 Form 8-K Report.
ITEM 6. SELECTED FINANCIAL DATA.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by Items 6, 7 and 8 is incorporated herein by
reference to the "Summary of Selected Consolidated Financial Data" on page 3,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 4 through 19, and the audited consolidated financial
statements and notes thereto on pages 21 through 51 of ComEd's January 30,
1998 Form 8-K Report. Reference is also made to "Item 1. Business,"
subcaptions "Changes in the Electric Utility Industry," "Construction Program"
and "Regulation" for additional information.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by Item 10 relating to directors and nominees for
election as directors at ComEd's Annual Meeting of shareholders to be held on
May 28, 1998 is incorporated herein by reference to information under the
heading "Security Ownership of Certain Beneficial Owners and Management" in
ComEd's definitive Information Statement ("1998 Information Statement") to be
filed with the SEC prior to April 30, 1998, pursuant to Regulation 14C under
the Securities Exchange Act of 1934. The information required by Item 10
relating to executive officers is set forth in Part I of ComEd's Annual Report
on Form 10-K under "Item 1. Business," subcaption "Executive Officers of the
Registrant" and under the heading "Security Ownership of Certain Beneficial
Owners and Management" in ComEd's 1998 Information Statement, which are
incorporated herein by reference.
28
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
The information required by Item 11 is incorporated herein by reference to
the paragraph labelled "Compensation of Directors" and the paragraphs under
the heading "Executive Compensation" (other than the paragraphs under the
heading "Corporate Governance and Compensation Committee Report on Executive
Compensation") in ComEd's 1998 Information Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by Item 12 is incorporated herein by reference to
the stock ownership information under the heading "Security Ownership of
Certain Beneficial Owners and Management" in ComEd's 1998 Information
Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
29
<PAGE>
ANNUAL REPORTS ON FORM 10-K FOR UNICOM CORPORATION AND COMMONWEALTH EDISON
COMPANY
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(A)FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES AND EXHIBITS:
<TABLE>
<CAPTION>
PAGE OF
JANUARY 30,
1998 FORM 8-
K REPORT
------------
UNICOM COMED
------ -----
<S> <C> <C>
The following financial statements are incorporated into the
Unicom Annual Report on Form 10-K by reference to the indi-
cated page or pages of Unicom's January 30, 1998 Form 8-K
Report, and into the ComEd Annual Report on Form 10-K by
reference to the indicated page or pages of ComEd's January
30, 1998 Form 8-K Report:
Report of Independent Public Accountants.................... 21 20
Statements of Consolidated Operations for the years 1997,
1996 and 1995.............................................. 22 21
Consolidated Balance Sheets--December 31, 1997 and 1996..... 23-24 22-23
Statements of Consolidated Capitalization--December 31, 1997
and 1996................................................... 25 24
Statements of Consolidated Retained Earnings (Deficit) for
the years 1997, 1996 and 1995.............................. 26 25
Statements of Consolidated Cash Flows for the years 1997,
1996 and 1995.............................................. 27 26
Notes to Financial Statements............................... 28-54 27-51
</TABLE>
<TABLE>
<CAPTION>
ANNUAL
REPORT ON
PAGE OF FORM 10-K
THIS ------------
DOCUMENT UNICOM COMED
-------- ------ -----
<S> <C> <C> <C>
The following supplemental schedules are included in
the indicated Annual Report on Form 10-K:
Report of Independent Public Accountants on
Supplemental Schedule.............................. 38 x
Report of Independent Public Accountants on
Supplemental Schedule.............................. 39 x
Schedule II--Valuation and Qualifying Accounts for
each of the three years in the period
ended
December 31, 1997........................ 40 x x
</TABLE>
The following schedules are omitted as not applicable or not required
under rules of Regulation S-X: I, III, IV and V.
30
<PAGE>
The individual financial statements and schedules of ComEd's
nonconsolidated wholly owned subsidiaries have been omitted from Unicom and
ComEd's Annual Reports on Form 10-K because the investments are not
material in relation to ComEd's financial position or results of
operations. As of December 31, 1997, the assets of the nonconsolidated
subsidiaries, in the aggregate, were less than 1% of ComEd's consolidated
assets. The 1997 revenues of the nonconsolidated subsidiaries, in the
aggregate, were less than 1% of ComEd's consolidated annual revenues.
The following exhibits are filed with the indicated Annual Report on Form
10-K or incorporated therein by reference. Documents indicated by an
asterisk (*) are incorporated by reference to the File No. indicated.
Documents indicated by a plus sign (+) identify management contracts or
compensatory plans or arrangements.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT UNICOM COMED
------- --------------------------------------------- ------ -----
<C> <S> <C> <C>
*(3)-1 Articles of Incorporation of Unicom effective
January 28,
1994. (File No. 1-11375, Form 10-K for the
year ended
December 31, 1994, Exhibit (3)-1). x
*(3)-2 Restated Articles of Incorporation of ComEd
effective February 20, 1985, including
Statements of Resolution Establishing Se-
ries, relating to the establishment of three
new series of ComEd preference stock known
as the "$9.00 Cumulative Preference Stock,"
the "$6.875 Cumulative Preference Stock" and
the "$2.425 Cumulative Preference Stock."
(File No.
1-1839, Form 10-K for the year ended Decem-
ber 31, 1994, Exhibit (3)-2). x
(3)-3 By-Laws of Unicom Corporation, effective Jan-
uary 28, 1994 as amended through March 11,
1998. x
(3)-4 By-Laws of Commonwealth Edison Company, ef-
fective September 2, 1988 as amended through
March 11, 1998. x
*(4)-1 Mortgage of ComEd to Illinois Merchants Trust
Company, Trustee (Harris Trust and Savings
Bank, as current successor Trustee), dated
July 1, 1923, Supplemental Indenture thereto
dated August 1, 1944, and amendments and
supplements thereto dated, respectively, Au-
gust 1, 1946, April 1, 1953, March 31, 1967,
April 1, 1967, July 1, 1968, October 1,
1968, February 28, 1969, May 29, 1970, Janu-
ary 1, 1971, June 1, 1971, May 31, 1972,
June 1, 1973, June 15, 1973, October 15,
1973, May 31, 1974, June 13, 1975, May 28,
1976, January 15, 1977 and June 3, 1977
(File No. 2-60201, Form S-7, Exhibit
2-1). x
*(4)-2 Supplemental Indentures to Mortgage dated
July 1, 1923 dated, respectively, May 17,
1978, August 31, 1978, June 18, 1979, June
20, 1980, April 16, 1981, April 30, 1982,
April 15, 1983, April 13, 1984 and April 15,
1985 (File No. 2-99665, Form S-3, Exhibit
(4)-3). x
*(4)-3 Supplemental Indenture to Mortgage dated July
1, 1923 dated April 15, 1986 (File No. 33-
6879, Form S-3, Exhibit (4)-9). x
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT UNICOM COMED
------- --------------------------------------------- ------ -----
<C> <S> <C> <C>
*(4)-4 Supplemental Indentures to Mortgage dated
July 1, 1923 dated, respectively, February
15, 1990 and June 15, 1990 (File No. 33-
38232, Form S-3, Exhibits (4)-11 and (4)-
12). x
*(4)-5 Supplemental Indentures to Mortgage dated
July 1, 1923 dated, respectively, June 1,
1991, October 1, 1991 and October 15, 1991
(File No. 33-44018, Form S-3, Exhibits (4)-
12, (4)-13 and (4)-14). x
*(4)-6 Supplemental Indenture to Mortgage dated July
1, 1923 dated February 1, 1992 (File No. 1-
1839, Form 10-K for the year ended December
31, 1991, Exhibit (4)-18). x
*(4)-7 Supplemental Indenture to Mortgage dated July
1, 1923 dated May 15, 1992 (File No. 33-
48542, Form S-3, Exhibit (4)-14). x
*(4)-8 Supplemental Indentures to Mortgage dated
July 1, 1923 dated, respectively, July 15,
1992 and September 15, 1992 (File No. 33-
53766, Form S-3, Exhibits (4)-13 and (4)-
14). x
*(4)-9 Supplemental Indenture to Mortgage dated July
1, 1923 dated February 1, 1993 (File No. 1-
1839, Form 10-K for the year ended December
31, 1992, Exhibit (4)-14). x
*(4)-10 Supplemental Indentures to Mortgage dated
July 1, 1923 dated, respectively, April 1,
1993 and April 15, 1993 (File No. 33-64028,
Form S-3, Exhibits (4)-12 and (4)-13). x
*(4)-11 Supplemental Indentures to Mortgage dated
July 1, 1923 dated, respectively, June 15,
1993 and July 1, 1993 (File No. 1-1839, Form
8-K dated May 21, 1993, Exhibits (4)-1 and
(4)-2). x
*(4)-12 Supplemental Indenture to Mortgage dated July
1, 1923 dated July 15, 1993 (File No. 1-
1839, Form 10-Q for the quarter ended June
30, 1993, Exhibit (4)-1). x
*(4)-13 Supplemental Indenture to Mortgage dated July
1, 1923 dated January 15, 1994 (File No. 1-
1839, Form 10-K for the year ended December
31, 1993, Exhibit (4)-15). x
*(4)-14 Supplemental Indenture to Mortgage dated July
1, 1923 dated December 1, 1994 (File No. 1-
1839, Form 10-K for the year ended December
31, 1994, Exhibit (4)-16). x
*(4)-15 Supplemental Indenture to Mortgage dated July
1, 1923 dated June 1, 1996. (File No. 1-
1839, Form 10-K for the year ended December
31, 1996, Exhibit (4)-16). x
*(4)-16 Instrument of Resignation, Appointment and
Acceptance dated January 31, 1996, under the
provisions of the Mortgage dated July 1,
1923, and Indentures Supplemental thereto
(File No. 1-1839, Form 10-K for the year
ended December 31, 1995, Exhibit (4)-28). x
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT UNICOM COMED
------- --------------------------------------------- ------ -----
<C> <S> <C> <C>
*(4)-17 Instrument dated as of January 31, 1996, for
trustee under the Mortgage dated July 1,
1923 and Indentures Supplemental thereto
(File No. 1-1839, Form 10-K for the year
ended December 31, 1995, Exhibit (4)-29). x
*(4)-18 Indentures of ComEd to The First National
Bank of Chicago, Trustee (Amalgamated Bank
of Chicago, as current successor Trustee),
dated April 1, 1949, October 1, 1949, Octo-
ber 1, 1950, October 1, 1954, January 1,
1958, January 1, 1959 and December 1, 1961
(File No. 1-1839, Form 10-K for the year
ended December 31, 1982, Exhibit (4)-20). x
*(4)-19 Indenture of ComEd dated February 15, 1973 to
The First National Bank of Chicago, Trustee
(LaSalle National Bank, successor Trustee),
and Supplemental Indenture thereto dated
July 13, 1973 (File No. 2-66100, Form S-16,
Exhibit (b)-2). x
*(4)-20 Indenture dated as of September 1, 1987 be-
tween ComEd and Citibank, N.A., Trustee re-
lating to Notes (File No. 33-20619, Form S-
3, Exhibit (4)-13). x
*(4)-21 Supplemental Indenture to Indenture dated
September 1, 1987 dated July 14, 1989 (File
No. 33-32929, Form S-3, Exhibit (4)-16). x
(4)-22 Supplemental Indenture to Indenture dated
September 1, 1987 dated January 1, 1997. x
*(4)-23 Credit Agreement dated as of October 1, 1991,
among ComEd, as borrower, the Banks named
therein and the other Lenders from time to
time parties thereto, and Citibank, N.A.
(File No. 1-1839, Form 10-K for the year
ended December 31, 1991, Exhibit (4)-27). x
*(4)-24 Credit Agreement dated as of October 1, 1991,
among ComEd, as borrower, the Banks named
therein and the other Lenders from time to
time parties thereto, and Citibank, N.A.
(File No. 1-1839, Form 10-K for the year
ended December 31, 1991, Exhibit (4)-28). x
(4)-25 Letter Agreement dated as of September 29,
1997, among ComEd and certain of the Banks
party to the Credit Agreement dated as of
October 1, 1991. x
*(4)-26 Amended and Restated Credit Agreement dated
as of November 15, 1996, among Unicom
Enterprises, the Banks Named Therein and
Citibank, N.A. (File No. 1-11375, Form 10-K
for the year ended December 31, 1996,
Exhibit (4)-31). x
*(4)-27 Amended and Restated Guaranty dated as of No-
vember 15, 1996, by Unicom in favor of the
Lenders and LC Banks parties to the afore-
mentioned Credit Agreement with Unicom En-
terprises (File No. 1-11375, Form 10-K for
the year ended December 31, 1996, Exhibit
(4)-32). x
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT UNICOM COMED
------- --------------------------------------------- ------ -----
<C> <S> <C> <C>
*(4)-28 Indenture dated September 1, 1995 between
ComEd and Wilmington Trust Company. (File
No. 1-1839, Form 10-K for the year ended De-
cember 31, 1996, Exhibit (4)-34). x
*(4)-29 First Supplemental Indenture dated September
19, 1995 to Indenture dated September 1,
1995. (File No. 1-1839, Form 10-K for the
year ended December 31, 1996, Exhibit (4)-
35). x
*(4)-30 Second Supplemental Indenture dated January
24, 1997 to Indenture dated September 1,
1995. (File No. 1-1839, Form 10-K for the
year ended December 31, 1996, Exhibit (4)-
36). x
*(4)-31 Rights Agreement dated as of February 2, 1998
between Unicom Corporation and First Chicago
Trust Company of New York, as Rights Agent,
which includes as Exhibit A the form of
Rights Certificate and as Exhibit B, the
Summary of Rights to Purchase Common Stock
(File No. 1-11375, Current Report on Form 8-
K dated February 2, 1998, Exhibit 4). x
*(10)-1 Nuclear Fuel Lease Agreement dated as of No-
vember 23, 1993, between CommEd Fuel Compa-
ny, Inc., as Lessor, and ComEd, as Lessee
(File No. 1-1839, Form 10-K for the year
ended December 31, 1993, Exhibit (10)-1). x
+*(10)- Unicom Corporation Amended and Restated Long-
2 Term Incentive Plan (File No. 1-11375,
Unicom Proxy Statement dated April 9, 1997,
Exhibit A). x
+*(10)- 1995 Long-Term Performance Unit Award for
3 Executive and Group Level Employees Payable
in 1998 under the Unicom Corporation Long-
Term Incentive Plan, as amended (File Nos.
1-11375 and 1-1839, Form 10-K for the year
ended December 31, 1995, Exhibit (10)-6). x x
+*(10)- 1996 Long-Term Performance Unit Award for Ex-
4 ecutive and Group Level Employees Payable in
1999 under the Unicom Corporation Long-Term
Incentive Plan (File Nos. 1-11375 and
1-1839, Form 10-K for the year ended Decem-
ber 31, 1995, Exhibit (10)-9). x x
+*(10)-5 1997 Long-Term Performance Unit Award for Ex-
ecutive and Group Level Employees Payable in
2000 under the Unicom Corporation Long-Term
Incentive Plan. (File Nos. 1-11375 and 1-
1839, Form 10-K for the year ended December
31, 1996, Exhibit (10)-12). x x
+(10)-6 1998 Long-Term Performance Unit Award for
Executive and Group Level Employees Payable
in 2001 under the Unicom Corporation Long-
Term Incentive Plan. x x
+*(10)-7 Unicom Corporation General Provisions Regard-
ing 1996 Stock Option Awards Granted under
the Unicom Corporation Long-Term Incentive
Plan. (File Nos. 1-11375 and 1-1839, Form
10-K for the year ended December 31, 1996,
Exhibit (10)-9). x x
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT UNICOM COMED
------- --------------------------------------------- ------ -----
<C> <S> <C> <C>
+*(10)-8 Unicom Corporation General Provisions Regard-
ing 1996B Stock Option Awards Granted under
the Unicom Corporation Long-Term Incentive
Plan. (File Nos. 1-11375 and 1-1839, Form
10-K for the year ended December 31, 1996,
Exhibit (10)-11). x x
+(10)-9 Unicom Corporation General Provisions Regard-
ing Stock Option Awards Granted under the
Unicom Corporation Long-Term Incentive Plan
(Effective July 10, 1997). x x
+*(10)- 1997 Annual Incentive Award for Management
10 Employees under the Unicom Corporation Long-
Term Incentive Plan. (File Nos. 1-11375 and
1-1839, Form 10-K for the year ended
December 31, 1996, Exhibit (10)-13). x x
+*(10)- 1997 Award to Mr. O'Connor, Mr. Mullin and
11 Mr. Skinner under the Unicom Corporation
Long-Term Incentive Plan. x x
+(10)- 1998 Annual Incentive Award for Management
12 Employees under the Unicom Corporation Long-
Term Incentive Plan. x x
+*(10)- Unicom Corporation Deferred Compensation Unit
13 Plan, as amended (File Nos. 1-11375 and 1-
1839, Form 10-K for the year ended Decem-
ber 31, 1995, Exhibit (10)-12). x x
+*(10)- Deferred Compensation Plan (included in Arti-
14 cle Five of Exhibit (3)-2 above). x
+*(10)- Management Incentive Compensation Plan, ef-
15 fective January 1, 1989 (File No. 1-1839,
Form 10-K for the year ended December 31,
1988, Exhibit (10)-4). x
+*(10)- Amendments to Management Incentive Compensa-
16 tion Plan, dated December 14, 1989 and March
21, 1990 (File No. 1-1839, Form 10-K for the
year ended December 31, 1989, Exhibit (10)-
5). x
+*(10)- Amendment to Management Incentive Compensa-
17 tion Plan, dated March 21, 1991 (File No. 1-
1839, Form 10-K for the year ended December
31, 1991, Exhibit (10)-6). x
+*(10)- Retirement Plan for Directors, effective Sep-
18 tember 1, 1994, as amended through March 12,
1997. (File No. 1-11375, Form 10-K for the
year ended December 31, 1996, Exhibit (10)-
19). x
+*(10)- Retirement Plan for Directors, effective Jan-
19 uary 1, 1987, as amended through March 12,
1997. (File No. 1-1839 Form 10-K for the
year ended December 31, 1996, Exhibit (10)-
20) x
+*(10)- Unicom Corporation 1996 Directors' Fee Plan
20 (File No. 1-11375, Unicom Proxy Statement
dated April 8, 1996, Appendix A). x x
+*(10)- Executive Group Life Insurance Plan (File No.
21 1-1839, Form 10-K for the year ended Decem-
ber 31, 1980, Exhibit (10)-3). x
+*(10)- Amendment to the Executive Group Life Insur-
22 ance Plan (File No. 1-1839, Form 10-K for
the year ended December 31, 1981, Exhibit
(10)-4). x
+*(10)- Amendment to the Executive Group Life Insur-
23 ance Plan dated December 12, 1986 (File No.
1-1839, Form 10-K for the year ended Decem-
ber 31, 1986, Exhibit (10)-6). x
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT UNICOM COMED
------- --------------------------------------------- ------ -----
<C> <S> <C> <C>
+*(10)- Amendment of Executive Group Life Insurance
24 Plan to implement program of "split dollar
life insurance" dated December 13, 1990
(File No. 1-1839, Form 10-K for the year
ended December 31, 1990, Exhibit (10)-10). x
+*(10)- Commonwealth Edison Company Supplemental Man-
25 agement Retirement Plan (File No. 1-1839,
Form 10-K for the year ended December 31,
1985, Exhibit (10)-6). x
+*(10)- Amendment of Executive Group Life Insurance
26 Plan to stabilize the death benefit applica-
ble to participants dated July 22, 1992
(File No. 1-1839, Form 10-K for the year
ended December 31, 1992, Exhibit (10)-13). x
+*(10)- Letter Agreement dated December 16, 1992 be-
27 tween ComEd and Samuel K. Skinner (File No.
1-1839, Form 10-K for the year ended Decem-
ber 31, 1992, Exhibit (10)-14). x
+*(10)- Amendment dated May 31, 1995 to Letter Agree-
28 ment dated December 16, 1992 between ComEd
and Samuel K. Skinner (File No. 1-1839, Form
10-K for the year ended December 31, 1995,
Exhibit (10)-27). x
+*(10)- Amendments dated December 11, 1996 and March
29 24, 1997 to Letter Agreement dated December
16, 1992 between ComEd and Samuel K. Skin-
ner. (File No. 1-1839, Form 10-K for the
year ended December 31, 1996, Exhibit (10)-
30). x
+*(10)- Letter Agreement dated November 14, 1995 be-
30 tween ComEd and Leo F. Mullin (File No.
1-1839, Form 10-K for the year ended
December 31, 1995, Exhibit (10)-28). x
+*(10)- Amendment dated March 24, 1997 to Letter
31 Agreement dated November 14, 1995 between
ComEd and Leo F. Mullin. (File No. 1-1839,
Form 10-K for the year ended December 31,
1996, Exhibit (10)-32). x
+*(10)- Commonwealth Edison Company Excess Benefit
32 Savings Plan (File No. 1-1839, Form 10-Q for
the quarter ended June 30, 1994, Exhibit
(10)-2). x
+*(10)- Amendment No. 1 to Commonwealth Edison Com-
33 pany Excess Benefit Savings Plan dated May
24, 1995 (File No. 1-1839, Form 10-K for the
year ended December 31, 1995, Exhibit
(10)-30). x
+(10)-34 Amendment No. 2 to Commonwealth Edison Com-
pany Excess Benefit Savings Plan effective
as of September 1, 1997. x
+*(10)- Unicom Corporation Stock Bonus Deferral Plan
35 (File Nos. 1-11375 and 1-1839, Form 10-K for
the year ended December 31, 1995, Exhibit
(10)-31). x x
+(10)-36 Amendment No. 1 to Unicom Corporation Stock
Bonus Deferral Plan dated January 3, 1997. x x
+(10)-37 Form of Stock Award Agreement under the
Unicom Corporation Long-Term Incentive Plan. x x
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT UNICOM COMED
------- --------------------------------------------- ------ -----
<C> <S> <C> <C>
(12) Statement re computation of ratios of earn-
ings to fixed charges and ratios of earnings
to fixed charges and preferred and prefer-
ence stock dividend requirements for ComEd. x
(18) Letter from independent public accountants
regarding change in accounting principle. x x
(21)-1 Subsidiaries of Unicom. x
(21)-2 Subsidiaries of ComEd. x
(23)-1 Consent of experts for Unicom. x
(23)-2 Consent of experts for ComEd. x
(24)-1 Powers of attorney of Directors whose names
are signed to the Unicom Annual Report on
Form 10-K pursuant to such powers. x
(24)-2 Powers of attorney of Directors whose names
are signed to the ComEd Annual Report on
Form 10-K pursuant to such powers. x
(99)-1 Unicom's Current Report on Form 8-K dated
January 30, 1998. x
(99)-2 ComEd's Current Report on Form 8-K dated Jan-
uary 30, 1998. x
</TABLE>
Pursuant to Item 601(b)(4)(iii) of Regulation S-K, Unicom and ComEd
hereby agree to furnish to the SEC, upon request, any instrument
defining the rights of holders of long-term debt of ComEd not filed as
an exhibit herein. No such instrument authorizes securities in excess
of 10% of the total assets of ComEd.
(B) REPORTS ON FORM 8-K:
A Current Report on Form 8-K dated October 9, 1997, was filed by
Unicom and ComEd to announce that James J. O'Connor, Chairman and Chief
Executive Officer of Unicom and ComEd intended to retire from the
companies.
A Current Report on Form 8-K dated December 16, 1997, was filed by
Unicom and ComEd to describe the 1997 Act and the related accounting
effects.
37
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON SUPPLEMENTAL SCHEDULE
To Unicom Corporation:
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements of Unicom Corporation and subsidiary
companies incorporated by reference in this Annual Report on Form 10-K, and
have issued our report thereon dated January 30, 1998.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in Item 14.(a), is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
Chicago, Illinois
January 30, 1998
38
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON SUPPLEMENTAL SCHEDULE
To Commonwealth Edison Company:
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements of Commonwealth Edison Company and
subsidiary companies incorporated by reference in this Annual Report on Form
10-K, and have issued our report thereon dated January 30, 1998.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in Item 14.(a), is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
Chicago, Illinois
January 30, 1998
39
<PAGE>
SCHEDULE II
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(THOUSANDS OF DOLLARS)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ---------------------------- --------- ----------------- ---------- --------
ADDITIONS
-----------------
BALANCE CHARGED
AT TO COSTS CHARGED BALANCE
BEGINNING AND TO OTHER AT END
DESCRIPTION OF YEAR EXPENSES ACCOUNTS DEDUCTIONS OF YEAR
- ---------------------------- --------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER
31, 1995
- ----------------------------
Reserve Deducted From Assets
in Consolidated Balance
Sheet:
Provision for uncollectible
accounts (a).............. $10,720 $ 1,108 $ -- $ -- $11,828
======= ======= ====== ======== =======
Estimated Obsolete Materi-
als....................... $13,690 $15,350 $ -- $(12,865)(b) $16,175
======= ======= ====== ======== =======
Other Reserves:
Estimated liabilities asso-
ciated with remediation
costs and former manufac-
tured gas plant sites..... $32,522 $ 2,271 $ -- $ (2,271)(c) $32,522
======= ======= ====== ======== =======
Accumulated provision for
injuries and damages...... $55,312 $21,135 $4,671 $(23,142)(d) $57,976
======= ======= ====== ======== =======
FOR THE YEAR ENDED DECEMBER
31, 1996
- ----------------------------
Reserve Deducted From Assets
in Consolidated Balance
Sheet:
Provision for uncollectible
accounts (a).............. $11,828 $ 1,065 $ -- $ -- $12,893
======= ======= ====== ======== =======
Estimated Obsolete Materi-
als....................... $16,175 $12,000 $ -- $(15,873)(b) $12,302
======= ======= ====== ======== =======
Other Reserves:
Estimated liabilities asso-
ciated with remediation
costs and former manufac-
tured gas plant sites..... $32,522 $ 1,728 $ -- $ (1,728)(c) $32,522
======= ======= ====== ======== =======
Accumulated provision for
injuries and damages...... $57,976 $10,892 $5,713 $(20,609)(d) $53,972
======= ======= ====== ======== =======
FOR THE YEAR ENDED DECEMBER
31, 1997
- ----------------------------
Reserve Deducted From Assets
in Consolidated Balance
Sheet:
Provision for uncollectible
accounts (a).............. $12,893 $ 4,651 $ -- $ -- $17,544
======= ======= ====== ======== =======
Estimated Obsolete Materi-
als....................... $12,302 $62,000 $ -- $(32,559)(b) $41,743
======= ======= ====== ======== =======
Other Reserves:
Estimated liabilities asso-
ciated with remediation
costs and former manufac-
tured gas plant sites..... $32,522 $ 2,410 $ -- $ (2,910)(c) $32,022
======= ======= ====== ======== =======
Accumulated provision for
injuries and damages...... $53,972 $ 8,565 $4,939 $(18,213)(d) $49,263
======= ======= ====== ======== =======
</TABLE>
Notes:
(a) Bad debt losses, net of recoveries, and provisions for uncollectible
accounts were charged to operating expense and amounted to $50,574,000,
$41,846,000 and $26,278,000 in 1997, 1996 and 1995, respectively.
(b) Write-off of obsolete materials.
(c) Expenditures for site investigation and cleanup costs.
(d) Payments of claims and related costs.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
40
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS
REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF CHICAGO AND STATE OF ILLINOIS ON THE 27TH
DAY OF MARCH, 1998.
UNICOM CORPORATION
John W. Rowe
By
--------------------------------
John W. Rowe, Chairman,
President and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF
OF THE REGISTRANT AND IN THE CAPACITIES INDICATED ON THE 27TH DAY OF
MARCH, 1998.
SIGNATURE
- ----------------------------
TITLE
---------------------
John W. Rowe Chairman, President and
- ---------------------------- Chief Executive Officer
John W. Rowe and Director (principal
executive officer)
John C. Bukovski
- ---------------------------- Senior Vice
John C. Bukovski President(principal
financial officer)
Robert E. Berdelle Comptroller (principal
- ---------------------------- accounting officer)
Robert E. Berdelle
Edward A. Brennan* Director
James W. Compton* Director
Bruce DeMars* Director
Sue L. Gin* Director
Donald P. Jacobs* Director
Edgar D. Jannotta* Director
David A. Scholz
*By
--------------------------------
David A. Scholz, Attorney-in-
fact
[Signature page to Unicom Corporation Annual Report on Form 10-K]
41
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS
REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF CHICAGO AND STATE OF ILLINOIS ON THE 27TH
DAY OF MARCH, 1998.
COMMONWEALTH EDISON COMPANY
John W. Rowe
By
--------------------------------
John W. Rowe, Chairman,
President and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF
OF THE REGISTRANT AND IN THE CAPACITIES INDICATED ON THE 27TH DAY OF
MARCH, 1998.
SIGNATURE
- ----------------------------
TITLE
---------------------
John W. Rowe Chairman, President and
- ---------------------------- Chief Executive Officer
John W. Rowe and Director (principal
executive officer)
John C. Bukovski
- ---------------------------- Senior Vice
John C. Bukovski President(principal
financial officer)
Robert E. Berdelle Comptroller (principal
- ---------------------------- accounting officer)
Robert E. Berdelle
Edward A. Brennan* Director
James W. Compton* Director
Bruce DeMars* Director
Sue L. Gin* Director
Donald P. Jacobs* Director
Edgar D. Jannotta* Director
David A. Scholz
*By
--------------------------------
David A. Scholz, Attorney-in-
fact
[Signature page to Commonwealth Edison Company Annual Report on Form 10-K]
42
<PAGE>
Unicom Corporation and
Commonwealth Edison Company
Form 10-K
File Nos. 1-11375 and 1-1839
EXHIBIT INDEX
The following exhibits are filed with the indicated Annual Report on Form
10-K or incorporated therein by reference. Documents indicated by an asterisk
(*) are incorporated by reference to the File No. indicated. Documents indicated
by a plus sign (+) identify management contracts or compensatory plans or
arrangements.
<TABLE>
<CAPTION>
Exhibit
Number Description of Document Unicom ComEd
------- ------------------------------------------------- ------ -----
<C> <S> <C> <C>
*(3)-1 Articles of Incorporation of Unicom effective
January 28, 1994. (File No. 1-11375, Form 10-K
for the year ended December 31, 1994, Exhibit
(3)-1). x
*(3)-2 Restated Articles of Incorporation of ComEd ef-
fective February 20, 1985, including Statements
of Resolution Establishing Series, relating to
the establishment of three new series of ComEd
preference stock known as the "$9.00 Cumulative
Preference Stock," the "$6.875 Cumulative Pref-
erence Stock" and the "$2.425 Cumulative Prefer-
ence Stock." (File No. 1-1839, Form 10-K for the
year ended December 31, 1994, Exhibit (3)-2). x
(3)-3 By-Laws of Unicom Corporation, effective January
28, 1994 as amended through March 11, 1998. x
(3)-4 By-Laws of Commonwealth Edison Company, effective
September 2, 1988 as amended through March 11,
1998. x
*(4)-1 Mortgage of ComEd to Illinois Merchants Trust
Company, Trustee (Harris Trust and Savings Bank,
as current successor Trustee), dated July 1,
1923, Supplemental Indenture thereto dated Au-
gust 1, 1944, and amendments and supplements
thereto dated, respectively, August 1, 1946,
April 1, 1953, March 31, 1967, April 1, 1967,
July 1, 1968, October 1, 1968, February 28, 1969,
May 29, 1970, January 1, 1971, June 1, 1971,
May 31, 1972, June 1, 1973, June 15, 1973,
October 15, 1973, May 31, 1974, June 13, 1975,
May 28, 1976, January 15, 1977 and June 3, 1977
(File No. 2-60201, Form S-7, Exhibit 2-1). x
*(4)-2 Supplemental Indentures to Mortgage dated July 1,
1923 dated, respectively, May 17, 1978, August
31, 1978, June 18, 1979, June 20, 1980, April
16, 1981, April 30, 1982, April 15, 1983, April
13, 1984 and April 15, 1985 (File No. 2-99665,
Form S-3, Exhibit (4)-3). x
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document Unicom ComEd
------- ------------------------------------------------- ------ -----
<C> <S> <C> <C>
*(4)-3 Supplemental Indenture to Mortgage dated July 1,
1923 dated April 15, 1986 (File No. 33-6879,
Form S-3, Exhibit (4)-9). x
*(4)-4 Supplemental Indentures to Mortgage dated July 1,
1923 dated, respectively, February 15, 1990 and
June 15, 1990 (File No. 33-38232, Form S-3, Ex-
hibits (4)-11 and (4)-12). x
*(4)-5 Supplemental Indentures to Mortgage dated July 1,
1923 dated, respectively, June 1, 1991, October
1, 1991 and October 15, 1991 (File No. 33-44018,
Form S-3, Exhibits (4)-12, (4)-13 and (4)-14). x
*(4)-6 Supplemental Indenture to Mortgage dated July 1,
1923 dated February 1, 1992 (File No. 1-1839,
Form 10-K for the year ended December 31, 1991,
Exhibit (4)-18). x
*(4)-7 Supplemental Indenture to Mortgage dated July 1,
1923 dated May 15, 1992 (File No. 33-48542, Form
S-3, Exhibit (4)-14). x
*(4)-8 Supplemental Indentures to Mortgage dated July 1,
1923 dated, respectively, July 15, 1992 and
September 15, 1992 (File No. 33-53766, Form S-3,
Exhibits (4)-13 and (4)-14). x
*(4)-9 Supplemental Indenture to Mortgage dated July 1,
1923 dated February 1, 1993 (File No. 1-1839,
Form 10-K for the year ended December 31, 1992,
Exhibits (4)-14). x
*(4)-10 Supplemental Indentures to Mortgage dated July 1,
1923 dated, respectively, April 1, 1993 and
April 15, 1993 (File No. 33-64028, Form S-3, Ex-
hibits (4)-12 and (4)-13). x
*(4)-11 Supplemental Indentures to Mortgage dated July 1,
1923 dated, respectively, June 15, 1993 and July
1, 1993 (File No. 1-1839, Form 8-K dated May 21,
1993, Exhibits (4)-1 and (4)-2). x
*(4)-12 Supplemental Indenture to Mortgage dated July 1,
1923 dated July 15, 1993 (File No. 1-1839, Form
10-Q for the quarter ended June 30, 1993, Ex-
hibit (4)-1). x
*(4)-13 Supplemental Indenture to Mortgage dated July 1,
1923 dated January 15, 1994 (File No. 1-1839,
Form 10-K for the year ended December 31, 1993,
Exhibit (4)-15). x
*(4)-14 Supplemental Indenture to Mortgage dated July 1,
1923 dated December 1, 1994 (File No. 1-1839,
Form 10-K for the year ended December 31, 1994,
Exhibit (4)-16). x
*(4)-15 Supplemental Indenture to Mortgage dated July 1,
1923 dated June 1, 1996. (File No. 1-1839, Form
10-K for the year ended December 31, 1996, Ex-
hibit (4)-16). x
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document Unicom ComEd
------- ------------------------------------------------- ------ -----
<C> <S> <C> <C>
*(4)-16 Instrument of Resignation, Appointment and Ac-
ceptance dated January 31, 1996, under the pro-
visions of the Mortgage dated July 1, 1923, and
Indentures Supplemental thereto (File No. 1-
1839, Form 10-K for the year ended December 31,
1995, Exhibit (4)-28). x
*(4)-17 Instrument dated as of January 31, 1996, for
trustee under the Mortgage dated July 1, 1923
and Indentures Supplemental thereto (File No. 1-
1839, Form 10-K for the year ended December 31,
1995, Exhibit (4)-29). x
*(4)-18 Indentures of ComEd to The First National Bank of
Chicago, Trustee (Amalgamated Bank of Chicago,
as current successor Trustee), dated April 1,
1949, October 1, 1949, October 1, 1950, October
1, 1954, January 1, 1958, January 1, 1959 and
December 1, 1961 (File No. 1-1839, Form 10-K for
the year ended December 31, 1982, Exhibit (4)-
20). x
*(4)-19 Indenture of ComEd dated February 15, 1973 to The
First National Bank of Chicago, Trustee (LaSalle
National Bank, successor Trustee), and Supple-
mental Indenture thereto dated July 13, 1973
(File No. 2-66100, Form S-16, Exhibit (b)-2). x
*(4)-20 Indenture dated as of September 1, 1987 between
ComEd and Citibank, N.A., Trustee relating to
Notes (File No. 33-20619, Form S-3, Exhibit (4)-
13). x
*(4)-21 Supplemental Indenture to Indenture dated Septem-
ber 1, 1987 dated July 14, 1989 (File No. 33-
32929, Form S-3, Exhibit (4)-16). x
(4)-22 Supplemental Indenture to Indenture dated Septem-
ber 1, 1987 dated January 1, 1997. x
*(4)-23 Credit Agreement dated as of October 1, 1991,
among ComEd, as borrower, the Banks named
therein and the other Lenders from time to time
parties thereto, and Citibank, N.A. (File No. 1-
1839, Form 10-K for the year ended December 31,
1991, Exhibit (4)-27). x
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document Unicom ComEd
------- ------------------------------------------------- ------ -----
<C> <S> <C> <C>
*(4)-24 Credit Agreement dated as of October 1, 1991,
among ComEd, as borrower, the Banks named
therein and the other Lenders from time to time
parties thereto, and Citibank, N.A. (File No. 1-
1839, Form 10-K for the year ended December 31,
1991, Exhibit (4)-28). x
(4)-25 Letter Agreement dated as of September 29, 1997,
among ComEd and certain of the Banks party to
the Credit Agreement dated as of October 1,
1991. x
*(4)-26 Amended and Restated Credit Agreement dated as of
November 15, 1996, among Unicom Enterprises, the
Banks Named Therein and Citibank, N.A. (File No.
1-11375, Form 10-K for the year ended December
31, 1996, Exhibit (4)-31). x
*(4)-27 Amended and Restated Guaranty dated as of Novem-
ber 15, 1996, by Unicom in favor of the Lenders
and LC Banks parties to the aforementioned
Credit Agreement with Unicom Enterprises (File
No. 1-11375, Form 10-K for the year ended Decem-
ber 31, 1996, Exhibit (4)-32). x
*(4)-28 Indenture dated September 1, 1995 between ComEd
and Wilmington Trust Company. (File No. 1-1839,
Form 10-K for the year ended December 31, 1996,
Exhibit (4)-34). x
*(4)-29 First Supplemental Indenture dated September 19,
1995 to Indenture dated September 1, 1995. (File
No. 1-1839, Form 10-K for the year ended Decem-
ber 31, 1996, Exhibit (4)-35). x
*(4)-30 Second Supplemental Indenture dated January 24,
1997 to Indenture dated September 1, 1995. (File
No. 1-1839, Form 10-K for the year ended Decem-
ber 31, 1996, Exhibit (4)-36). x
*(4)-31 Rights Agreement dated as of February 2, 1998
between Unicom Corporation and First Chicago
Trust Company of New York, as Rights Agent, which
includes as Exhibit A the Form of Rights
Certificate and as Exhibit B, the Summary of
Rights to Purchase Common Stock (File No.
1-11375, Current Report on Form 8-K dated
February 2, 1998, Exhibit 4). x
*(10)-1 Nuclear Fuel Lease Agreement dated as of November
23, 1993, between CommEd Fuel Company, Inc., as
Lessor, and ComEd, as Lessee (File No. 1-1839,
Form 10-K for the year ended December 31, 1993,
Exhibit (10)-1). x
+*(10)-2 Unicom Corporation Amended and Restated Long-Term
Incentive Plan (File No. 1-11375, Unicom Proxy
Statement dated April 9, 1997, Exhibit A). x
+*(10)-3 1995 Long-Term Performance Unit Award for
Executive and Group Level Employees Payable in
1998 under the Unicom Corporation Long-Term
Incentive Plan, as amended (File Nos. 1-11375 and
1-1839, Form 10-K for the year ended December
31, 1995, Exhibit (10)-6). x x
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document Unicom ComEd
------- ------------------------------------------------- ------ -----
<C> <S> <C> <C>
+*(10)-4 1996 Long-Term Performance Unit Award for Execu-
tive and Group Level Employees Payable in 1999
under the Unicom Corporation Long-Term Incentive
Plan (File Nos. 1-11375 and 1-1839, Form 10-K
for the year ended December 31, 1995, Exhibit
(10)-9). x x
+*(10)-5 1997 Long-Term Performance Unit Award for Execu-
tive and Group Level Employees Payable in 2000
under the Unicom Corporation Long-Term Incentive
Plan. (File Nos. 1-11375 and 1-1839, Form 10-K
for the year ended December 31, 1996, Exhibit
(10)-12). x x
+(10)-6 1998 Long-Term Performance Unit Award for
Executive and Group Level Employees Payable in
2001 under the Unicom Corporation Long-Term
Incentive Plan. x x
+*(10)-7 Unicom Corporation General Provisions Regarding
1996 Stock Option Awards Granted under the
Unicom Corporation Long-Term Incentive Plan.
(File Nos. 1-11375 and 1-1839, Form 10-K for the
year ended December 31, 1996, Exhibit (10)-9). x x
+*(10)-8 Unicom Corporation General Provisions Regarding
1996B Stock Option Awards Granted under the
Unicom Corporation Long-Term Incentive Plan.
(File Nos. 1-11375 and 1-1839, Form 10-K for the
year ended December 31, 1996, Exhibit (10)-11). x x
+(10)-9 Unicom Corporation General Provisions Regarding
Stock Option Awards Granted under the
Unicom Corporation Long-Term Incentive Plan
(Effective July 10, 1997). x x
+*(10)-10 1997 Annual Incentive Award for Managment
Employees under the Unicom Corporation Long-Term
Incentive Plan. (File Nos. 1-11375 and 1-1839,
Form 10-K for the year ended December 31, 1996,
Exhibit (10)-13). x x
+*(10)-11 1997 Award to Mr. O'Connor, Mr. Mullin and Mr.
Skinner under the Unicom Corporation Long-Term
Incentive Plan. x x
+(10)-12 1998 Annual Incentive Award for Management
Employees under the Unicom Corporation Long-Term
Incentive Plan. x x
+*(10)-13 Unicom Corporation Deferred Compensation Unit
Plan, as amended (File Nos. 1-11375 and 1-1839,
Form 10-K for the year ended December 31, 1995,
Exhibit (10)-12). x x
+*(10)-14 Deferred Compensation Plan (included in Article
Five of Exhibit (3)-2 above). x
+*(10)-15 Management Incentive Compensation Plan, effective
January 1, 1989 (File No. 1-1839, Form 10-K for
the year ended December 31, 1988, Exhibit (10)-
4). x
+*(10)-16 Amendments to Management Incentive Compensation
Plan, dated December 14, 1989 and March 21, 1990
(File No. 1-1839, Form 10-K for the year ended
December 31, 1989, Exhibit (10)-5). x
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document Unicom ComEd
------- ------------------------------------------------- ------ -----
<C> <S> <C> <C>
+*(10)-17 Amendment to Management Incentive Compensation
Plan, dated March 21, 1991 (File No. 1-1839,
Form 10-K for the year ended December 31, 1991,
Exhibit (10)-6). x
+*(10)-18 Retirement Plan for Directors, effective Septem-
ber 1, 1994, as amended through March 12, 1997.
(File No. 1-11375, Form 10-K for the year ended
December 31, 1996, Exhibit (10)-19). x
+*(10)-19 Retirement Plan for Directors, effective January
1, 1987, as amended through March 12, 1997.
(File No. 1-1839, Form 10-K for the year ended
December 31, 1996, Exhibit (10)-20) x
+*(10)-20 Unicom Corporation 1996 Directors' Fee Plan (File
No. 1-11375, Unicom Proxy Statement dated April
8, 1996, Appendix A). x x
+*(10)-21 Executive Group Life Insurance Plan (File No. 1-
1839, Form 10-K for the year ended December 31,
1980, Exhibit (10)-3). x
+*(10)-22 Amendment to the Executive Group Life Insurance
Plan (File No. 1-1839, Form 10-K for the year
ended December 31, 1981, Exhibit (10)-4). x
+*(10)-23 Amendment to the Executive Group Life Insurance
Plan dated December 12, 1986 (File No. 1-1839,
Form 10-K for the year ended December 31, 1986,
Exhibit (10)-6). x
+*(10)-24 Amendment of Executive Group Life Insurance Plan
to implement program of "split dollar life in-
surance" dated December 13, 1990 (File No. 1-
1839, Form 10-K for the year ended December 31,
1990, Exhibit (10)-10). x
+*(10)-25 Commonwealth Edison Company Supplemental Manage-
ment Retirement Plan (File No. 1-1839, Form 10-K
for the year ended December 31, 1985, Exhibit
(10)-6). x
+*(10)-26 Amendment of Executive Group Life Insurance Plan
to stabilize the death benefit applicable to
participants dated July 22, 1992 (File No. 1-
1839, Form 10-K for the year ended December 31,
1992, Exhibit (10)-13). x
+*(10)-27 Letter Agreement dated December 16, 1992 between
ComEd and Samuel K. Skinner (File No. 1-1839,
Form 10-K for the year ended December 31, 1992,
Exhibit (10)-14). x
+*(10)-28 Amendment dated May 31, 1995 to Letter Agreement
dated December 16, 1992 between ComEd and Samuel
K. Skinner (File No. 1-1839, Form 10-K for the
year ended December 31, 1995, Exhibit (10)-27). x
+*(10)-29 Amendments dated December 11, 1996 and March 24,
1997 to Letter Agreement dated December 16, 1992
between ComEd and Samuel K. Skinner. (File No.
1-1839, Form 10-K for the year ended December
31, 1996, Exhibit (10)-30). x
+*(10)-30 Letter Agreement dated November 14, 1995 between
ComEd and Leo F. Mullin (File No. 1-1839, Form
10-K for the year ended December 31, 1995, Ex-
hibit (10)-28). x
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document Unicom ComEd
------- ------------------------------------------------- ------ -----
<C> <S> <C> <C>
+*(10)-31 Amendment dated March 24, 1997 to Letter Agree-
ment dated November 14, 1995 between ComEd and
Leo F. Mullin. (File No. 1-1839, Form 10-K for
the year ended December 31, 1996, Exhibit (10)-
32). x
+*(10)-32 Commonwealth Edison Company Excess Benefit Sav-
ings Plan (File No. 1-1839, Form 10-Q for the
quarter ended June 30, 1994, Exhibit (10)-2). x
+*(10)-33 Amendment No. 1 to Commonwealth Edison Company
Excess Benefit Savings Plan dated May 24, 1995
(File No. 1-1839, Form 10-K for the year ended
December 31, 1995, Exhibit (10)-30). x
+(10)-34 Amendment No. 2 to Commonwealth Edison Company
Excess Benefit Savings Plan effective as of
September 1, 1997. x
+*(10)-35 Unicom Corporation Stock Bonus Deferral Plan
(File Nos. 1-11375 and 1-1839, Form 10-K for the
year ended December 31, 1995, Exhibit (10)-31). x x
+(10)-36 Amendment No. 1 to Unicom Corporation Stock
Bonus Deferral Plan dated January 3, 1997. x x
+(10)-37 Form of Stock Award Agreement under the Unicom
Corporation Long-Term Incentive Plan. x x
(12) Statement re computation of ratios of earnings to
fixed charges and ratios of earnings to fixed
charges and preferred and preference stock divi-
dend requirements for ComEd. x
(18) Letter from independent public accountants
regarding change in accounting principle.
x x
(21)-1 Subsidiaries of Unicom. x
(21)-2 Subsidiaries of ComEd. x
(23)-1 Consent of experts for Unicom. x
(23)-2 Consent of experts for ComEd. x
(24)-1 Powers of attorney of Directors whose names are
signed to the Unicom Annual Report on Form 10-K
pursuant to such powers. x
(24)-2 Powers of attorney of Directors whose names are
signed to the ComEd Annual Report on Form 10-K
pursuant to such powers. x
(99)-1 Unicom's Current Report on Form 8-K dated January
30, 1998. x
(99)-2 ComEd's Current Report on Form 8-K dated January
30, 1998. x
</TABLE>
Pursuant to Item 601(b)(4)(iii) of Regulation S-K, Unicom and ComEd
hereby agree to furnish to the SEC, upon request, any instrument
defining the rights of holders of long-term debt of ComEd not filed as
an exhibit herein. No such instrument authorizes securities in excess
of 10% of the total assets of ComEd.
7
<PAGE>
Exhibit (3)-3
Unicom Corporation
Form 10-K File No. 1-11375
Unicom Corporation
By-Laws
Effective January 28, 1994
As Amended Through
March 11, 1998
<PAGE>
<TABLE>
<CAPTION>
CONTENTS
Page
Number
<S> <C> <C>
ARTICLE I. Stock.................................................. 1
ARTICLE II. Meetings of Shareholders............................... 3
ARTICLE III. Board of Directors..................................... 9
ARTICLE IV. Committees of the Board of Directors................... 11
ARTICLE V. Officers............................................... 15
ARTICLE VI. Indemnification........................................ 20
ARTICLE VII. Miscellaneous.......................................... 21
ARTICLE VIII. Alteration, Amendment or Repeal of By-Laws............. 22
</TABLE>
<PAGE>
Unicom Corporation
By-Laws
-----
ARTICLE I.
STOCK.
SECTION 1. Each holder of fully paid stock shall be entitled to a certificate
or certificates of stock stating the number and class of shares, and the
designation of the series, if any, which such certificate represents. All
certificates of stock shall at the time of their issuance be signed either
manually or by facsimile signature by the Chairman, the President or a Vice
President and by the Secretary or an Assistant Secretary. All certificates of
stock shall be sealed with the seal of the Company or a facsimile of such seal,
shall be countersigned either manually or by facsimile signature by a Transfer
Agent and shall be authenticated by manual signature and registered by a
Registrar. The Board of Directors shall appoint one or more Transfer Agents,
none of whom shall be officers of the Company authorized to sign certificates of
stock, and one or more Registrars, each of which Registrars shall be a bank or
trust company. Certificates of stock shall not be valid until countersigned by a
Transfer Agent and authenticated and registered by a Registrar in the manner
provided by the Board of Directors.
SECTION 2. Shares of stock shall be transferable only on the books of the
Company and, except as hereinafter provided or as otherwise required by law,
shall be transferred only upon proper endorsement and surrender of the
certificates issued therefor. If an outstanding certificate of stock shall be
lost, destroyed or stolen, the holder thereof may have a new certificate upon
producing evidence satisfactory to the Board of Directors of such loss,
destruction or theft, and upon furnishing to the Company, the Transfer Agents
and the Registrars a bond of indemnity deemed sufficient by the Board of
Directors against claims under the outstanding certificate.
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<PAGE>
SECTION 3. The certificates for each class or series of stock shall be
numbered and issued in consecutive order and a record shall be kept of the name
and address of the person to whom each certificate is issued, the number of
shares represented by the certificate and the number and date of the
certificate. All certificates exchanged or returned to the Company or the
Transfer Agent for transfer shall be canceled and filed.
SECTION 4. For the purpose of determining shareholders entitled to notice of
or to vote at any meeting of shareholders, or shareholders entitled to receive
payment of any dividend, or in order to make a determination of shareholders for
any other proper purpose, the Board of Directors may fix in advance a date as
the record date for any such determination of shareholders, such date in any
case to be not more than sixty days and, for a meeting of shareholders, not less
than ten days, or in the case of a merger, consolidation, share exchange,
dissolution or sale, lease or exchange of assets, not less than twenty days,
immediately preceding such meeting.
SECTION 5. If any subscription for stock in the Company or any installment of
such subscription shall be unpaid when due, as the Board of Directors shall have
determined the time for payment, and shall continue unpaid for twenty days after
demand for the amount due, made either in person or by written notice duly
mailed to the last address, as it appears on the records of the Company, of the
subscriber or other person by whom the subscription or installment shall be
payable, the stock or subscription upon which payment shall be so due shall,
upon the expiration of said twenty days, become and be forfeited to the Company
without further action, demand or notice, and such stock or subscription may be
sold at public sale, subject to payment of the amount due and unpaid, plus all
costs and expenses incurred by the Company in that connection, at a time and
place to be stated in a written notice to be mailed to the recorded address of
the delinquent subscriber or other person in default on the subscription at
least ten days prior to the time fixed for such sale; provided, that the excess
of proceeds of such sale realized over the amount due and unpaid on said stock
or subscription shall be paid to the delinquent subscriber of other person in
default on the subscription, or to his or her legal representative; and,
provided further, that no forfeiture of stock, or of any amounts paid upon a
subscription therefor,
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<PAGE>
shall be declared as against the estate of any decedent before distribution
shall have been made of the estate.
The foregoing provisions for the forfeiture and sale of stock or subscriptions
shall not exclude any other remedy which may lawfully be enforceable at any
time, by forfeiture of stock or of amounts theretofore paid or otherwise,
against any person for nonpayment of a subscription or of any installment
thereof.
SECTION 6. Transfers of shares shall be made only on the books of the Company
by the registered holder thereof or by his or her legal representative, who
shall furnish proper evidence of authority to transfer, or by his or her
attorney or successor thereunto authorized by power of attorney or by documents
duly executed and filed with the Secretary or Transfer Agent of the Company, and
upon surrender for cancellation of the certificate for such shares. The person
in whose name shares stand on the books of the Company shall be deemed the owner
thereof for all purposes as regards the Company.
SECTION 7. The Company shall be entitled to treat the holder of record of any
share or shares of stock as the holder in fact thereof and accordingly, shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of the
State of Illinois.
ARTICLE II.
MEETINGS OF SHAREHOLDERS.
SECTION 1. (a) The regular annual meeting of the shareholders of the Company
for the election of Directors and for the transaction of such other business as
may properly come before the meeting shall be held on such day in April or May
of each year as the Board of Directors may by resolution determine. Each such
regular annual meeting and each special meeting of the shareholders shall be
held at such place as may be fixed by the Board of Directors and at such hour as
the Board of Directors shall order.
(b) [Effective June 1, 1998] Only such business shall be conducted at an
annual meeting of shareholders as shall have been properly brought before the
meeting. For business to be properly brought
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<PAGE>
before the meeting, it must be: (i) authorized by the Board of Directors and
specified in the notice, or a supplemental notice, of the meeting, (ii)
otherwise be brought before the meeting by or at the direction of the Board of
Directors or (iii) otherwise properly brought before the meeting by a
shareholder of the Company who is a shareholder of record at the time of giving
of the notice provided for in this Section, who shall be entitled to vote at
such annual meeting and who complies with the procedures set forth in this
Section 1(b). For business to be properly brought before an annual meeting by a
shareholder, the shareholder must have given timely notice thereof in proper
written form to the Secretary of the Company. To be timely, a shareholder's
notice must be delivered to or mailed and received at the principal executive
offices of the Company not less than 90 days nor more than 120 days prior to the
anniversary date of the immediately preceding annual meeting of shareholders;
provided, however, that in the event that the annual meeting is called for a
date that is not within 30 days before or after such anniversary date, notice by
the shareholder in order to be timely must be received not later than the close
of business on the 10th day following the day on which such notice of the date
of the annual meeting was mailed or, if earlier, the day on which public
announcement of the date of the annual meeting was made. In no event shall the
public announcement of an adjournment or postponement of an annual meeting
commence a new time period for the giving of a shareholder's notice as described
above. To be in proper written form, a shareholder's notice to the Secretary
shall set forth in writing as to each matter the shareholder proposes to bring
before the meeting (i) a brief description of such matter and the reasons for
conducting such business at the annual meeting, (ii) the name and address, as
they appear on the Company's books, of the shareholder proposing such business,
(iii) the number of shares of stock of the Company which are beneficially owned
by the shareholder, (iv) a description of all arrangements or understandings
between such shareholder and any other person(s) (including their names) in
connection with the proposal of such business by such shareholder and any
material interest of the shareholder in such business and (v) a representation
that such shareholder intends to appear in person or by proxy at the annual
meeting to bring such business before the meeting. Notwithstanding anything in
the By-laws to the contrary, no business shall be conducted at an annual meeting
except in accordance with the procedures set forth in this Section 1(b).
-4-
<PAGE>
The chairman of an annual meeting at which any business is proposed by a
shareholder shall have sole authority to determine, if the facts warrant, that
such business was not properly brought before the meeting in accordance with the
provisions of this Section 1(b), and, if he should so determine, he shall so
declare to the meeting and any such business not properly brought before the
meeting shall not be transacted. For purposes of this Section 1(b), "public
announcement" shall include disclosure in a press release issued to one or more
national financial or general news services or in a document publicly filed by
the Company with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the Securities Exchange Act of 1934, as amended.
SECTION 2. Special meetings of the shareholders may be called by the Chairman,
by the Board of Directors, by a majority of the Directors individually or by the
holders of not less than one-fifth of the total outstanding shares of capital
stock of the Company.
SECTION 3. Written notice stating the place, day and hour of the meeting of
the shareholders and, in the case of a special meeting, the purpose or purposes
for which the meeting is called shall be delivered not less than ten nor more
than sixty days before the date of the meeting, or in the case of a merger,
consolidation, share exchange, dissolution or sale, lease or exchange of assets
not less than twenty nor more than sixty days before the date of the meeting,
either personally or by mail, by or at the direction of the Chairman, the
Secretary or the persons calling the meeting, to each shareholder of record
entitled to vote at such meeting. If mailed, such notice shall be deemed to be
delivered when deposited in the United States mail addressed to the shareholder
at the shareholder's address as it appears upon the records of the Company, with
postage thereon prepaid.
SECTION 4. At all meetings of the shareholders, a majority of the outstanding
shares of stock, entitled to vote on a matter, represented in person or by
proxy, shall constitute a quorum for consideration of such matter, but the
shareholders represented at any meeting, though less than a quorum, may adjourn
the meeting to some other day or sine die. If a quorum is present, the
affirmative vote of the majority of the shares of stock represented at the
meeting and entitled to vote on a matter shall be the act of the shareholders,
unless the vote of
-5-
<PAGE>
a greater number or voting by classes is required by law or the articles of
incorporation.
SECTION 5. At every meeting of the shareholders, each outstanding share of
stock shall be entitled to one vote on each matter submitted for a vote. In all
elections for Directors, every shareholder shall have the right to vote the
number of shares owned by such shareholder for as many persons as there are
Directors to be elected, or to cumulate such votes and give one candidate as
many votes as shall equal the number of Directors to be elected multiplied by
the number of such shares or to distribute such cumulative votes in any
proportion among any number of candidates. A shareholder may vote either in
person or by proxy. A shareholder may appoint a proxy to vote or otherwise act
for him or her by signing an appointment form and delivering it to the person so
appointed.
SECTION 6. Any meeting at which a quorum of shareholders is present, in person
or by proxy, may adjourn from time to time without notice, other than
announcement at such meeting, until its business is completed. At the adjourned
meeting, the Company may transact any business which might have been transacted
at the original meeting. If the adjournment is for more than thirty days, a
notice of the adjourned meeting shall be given to each shareholder of record
entitled to vote at the meeting.
SECTION 7. The Secretary of the Company shall make or cause to be made, within
twenty days after the record date for a meeting of shareholders of the Company
or ten days before such meeting, whichever is earlier, a complete list of the
shareholders entitled to vote at such meeting, arranged in alphabetical order,
with the address of and the number of shares held by each, which list, for at
least ten days prior to such meeting, shall be kept on file at the registered
office of the Company and shall be subject to inspection by any shareholder, and
to copying at such shareholder's expense, at any time during usual business
hours. Such list shall also be produced and kept open at the time and place of
the meeting and shall be subject to the inspection of any shareholder during the
whole time of the meeting.
SECTION 8. The Chairman and the Secretary of the Company shall, when present,
act as chairman and secretary, respectively, of each meeting of the
shareholders.
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<PAGE>
SECTION 9. At any meeting of shareholders, the chairman of the meeting may, or
upon the request of any shareholder shall, appoint one or more persons as
inspectors for such meeting, unless an inspector or inspectors shall have been
previously appointed for such meeting by the Chairman. Such inspectors shall
ascertain and report the number of shares of stock represented at the meeting,
based upon their determination of the validity and effect of proxies, count all
votes and report the results and do such other acts as are proper to conduct the
election and voting with impartiality and fairness to all the shareholders.
SECTION 10. Voting on any question or in any election may be viva voce unless
the presiding officer shall order or any shareholder shall demand that voting be
by ballot.
SECTION 11. [Effective June 1, 1998] Only persons who are nominated in
accordance with the procedures set forth in this Section 11 shall be eligible
for election at a meeting of shareholders as directors of the Company.
Nominations of persons for election to the Board of Directors of the Company may
be made at a meeting of shareholders (a) by or at the direction of the Board of
Directors or a committee of the Board of Directors or (b) by any shareholder of
the Company who is a shareholder of record at the time of giving of notice
provided for in this Section, who shall be entitled to vote for the election of
directors at the meeting and who complies with the procedures set forth in this
Section 11. Any nomination by a shareholder shall be made pursuant to timely
notice in writing to the Secretary of the Company. To be timely, a shareholder's
notice shall be delivered to or mailed and received at the principal executive
offices of the Company not less than 90 days nor more than 120 days prior to the
anniversary date of the immediately preceding annual meeting of shareholders;
provided, however, that in the event that the annual meeting is called for a
date that is not within 30 days before or after such anniversary date, notice by
the shareholder in order to be timely must be received not later than the close
of business on the 10th day following the day on which such notice of the date
of the annual meeting was mailed or, if earlier, the day on which public
announcement of the date of the annual meeting was made. In no event shall the
public announcement of an adjournment or postponement of an annual meeting
commence a new time period for the giving of a shareholder's notice as described
above. Such shareholder's
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<PAGE>
notice shall set forth (a) as to each person whom the shareholder proposes to
nominate for election or re-election as a director, all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended
(including, without limitation, such person's written consent to being named in
the proxy statement as a nominee and to serving as a director if elected); and
(b) as to the shareholder giving the notice (i) the name and address, as they
appear on the Company's books, of such shareholder, (ii) the number of shares of
stock of the Company which are beneficially owned by such shareholder, (iii) a
description of all arrangements or understandings between such shareholder and
each proposed nominee and any other person(s) (including their names) pursuant
to which the nomination(s) are made by such shareholder, (iv) a representation
that such shareholder intends to appear in person or by proxy at the meeting to
nominate the persons named in such shareholder's notice and (v) any other
information relating to such shareholder that is or would be required to be
disclosed pursuant to Regulation 14A promulgated under the Securities Exchange
Act of 1934, as amended. At the request of the Board of Directors, any person
nominated by the Board of Directors for election as a director shall furnish to
the Secretary of the Company that information required to be set forth in a
shareholder's notice of nomination which pertains to the nominee. The chairman
of the meeting at which a shareholder nomination is presented shall have sole
authority to determine, if the facts warrant, that a nomination was not made in
accordance with the procedures prescribed by this Section 11, and if he should
so determine, he shall so declare to the meeting and the defective nomination
shall be disregarded. Notwithstanding the foregoing provisions of this Section
11, a shareholder shall also comply with all applicable requirements of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder with respect to the matters set forth in this Section. For purposes
of this Section 11, "public announcement" shall include disclosure in a press
release issued to one or more national financial or general news services or in
a document publicly filed by the Company with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(d) of the Securities Exchange Act of
1934, as amended.
-8-
<PAGE>
ARTICLE III.
BOARD OF DIRECTORS.
SECTION 1. The business and affairs of the Company shall be managed by or
under the direction of the Board of Directors. The number of Directors of the
Company shall be not less than eight nor more than thirteen. The Directors shall
be elected at each annual meeting of the shareholders, but if for any reason the
election shall not be held at an annual meeting, it may be subsequently held at
any special meeting of the shareholders called for that purpose after proper
notice. The Directors so elected shall hold office until the next annual meeting
and until their respective successors, willing to serve, shall have been elected
and qualified. Directors need not be residents of the State of Illinois or
shareholders of the Company. No person shall be eligible for nomination or
renomination as a Director by the management of the Company who, prior to the
date of election, shall have attained age seventy-two. No person who is an
employe or a former employe of the Company or of a subsidiary of the Company
shall be eligible for nomination or renomination as a Director by the management
of the Company for a term commencing after such person ceases to be such an
employe; provided, however, that any Director of the Company who was a Director
of Commonwealth Edison Company, an Illinois corporation, in office on June 15,
1989 who is or has been such an employe may be renominated as a Director unless
such person shall have attained age sixty-five on or before the date of election
of Directors.
SECTION 2. Any vacancy occurring in the Board of Directors, including a
vacancy created by an increase in the number of directors, may be filled by
election at an annual meeting or at a special meeting of shareholders called for
that purpose; provided, however, that any vacancy in the Board of Directors
arising between meetings of shareholders by reason of an increase in the number
of directors or otherwise may be filled by the vote of a majority of the
directors then in office, although less than a quorum. Any directors so elected
shall serve until the next annual meeting of shareholders.
SECTION 3. A meeting of the Board of Directors shall be held immediately, or
as soon as practicable, after the annual election of Directors in each year,
provided a quorum for such meeting can be obtained. Notice of every meeting of
the Board,
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<PAGE>
stating the time and place at which such meeting will be held, shall be given to
each Director personally, by telephone or by other means of communication at
least one day, or by depositing the same in the mails properly addressed at
least two days before the day of such meeting. A meeting of the Board of
Directors may be called at any time by the Chairman or by any two Directors and
shall be held at such place as shall be specified in the notice for such
meeting.
SECTION 4. A majority of the number of Directors then in office, but not less
than six, shall constitute a quorum for the transaction of business at any
meeting of the Board, but a lesser number may adjourn the meeting from time to
time until a quorum is obtained, or may adjourn sine die. The act of the
majority of the Directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors.
SECTION 5. Each member of the Board not receiving a salary from the Company or
a subsidiary of the Company shall be paid such fees as the Board of Directors
may from time to time, by resolution adopted by the affirmative vote of a
majority of the Directors then in office, and irrespective of any personal
interest of any of its members, determine. The Directors shall be paid their
reasonable expenses, if any, of attendance at each meeting of the Board of
Directors. Members of any committee of the Board of Directors may be allowed
like fees and expenses for service on or attendance at meetings of such
committee. No such payment shall preclude any Director from serving the Company
in any other capacity and receiving compensation therefor.
SECTION 6. A Director of the Company who is present at a meeting of the Board
of Directors at which action is taken on any corporate matter shall be
conclusively presumed to have assented to the action taken unless his or her
dissent shall be entered in the minutes of the meeting or unless he shall file
his or her written dissent to such action with the person acting as Secretary of
the meeting before the adjournment thereof or shall forward such dissent by
registered mail to the Secretary of the Company immediately after the
adjournment of the meeting. Such right to dissent shall not apply to a director
who voted in favor of such action.
SECTION 7. At the first meeting of the Board of Directors following the annual
meeting of shareholders each year, the Board shall elect a Lead Director. The
Lead Director shall be
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<PAGE>
elected from among the Outside Directors of the Company. For purposes hereof,
"Outside Directors" shall be those who are not and never have been employees of
the Company or any of its direct or indirect subsidiaries. The duties of the
Lead Director shall be to convene and chair meetings of the Outside Directors
and to assume other responsibilities which the Outside Directors might designate
from time to time. The Lead Director will consult with other Outside Directors
as to appropriate items for discussion at each such meeting.
ARTICLE IV.
COMMITTEES OF THE BOARD OF DIRECTORS
SECTION 1. There shall be an Executive Committee of the Board consisting of
not less than three nor more than six members. The Board of Directors shall, at
its first meeting after the annual meeting of the shareholders in each year,
elect a chairman and the other members of the Executive Committee. The remaining
Directors shall constitute alternates to serve temporarily, and as far as
practicable in rotation (in such order as shall be established by the Board), in
the place of any member who may be unable to serve. The Chairman or the
Directors calling a meeting of the Executive Committee shall call upon
alternates, in rotation, to serve as herein provided. When any alternate serves,
the minutes of the meeting shall record the name of the member in whose place
such alternate serves. The Directors elected as members of the Executive
Committee shall serve as such for one year and until their respective
successors, willing to serve, shall have been elected. The Executive Committee
shall, when the Board is not in session, have and may exercise all of the
authority of the Board of Directors, subject to the limitations set forth in
Section 10 of this Article IV. Vacancies in the membership of the Executive
Committee shall be filled by the Board of Directors. The Executive Committee
shall keep minutes of the proceedings at its meetings.
SECTION 2. There shall be an Audit Committee of the Board consisting of not
less than three nor more than five members who are not employes of the Company.
The Directors elected as members of the Audit Committee shall serve as such for
three years and until their respective successors, willing to serve, shall have
been elected, provided that, to the extent practicable, the members of the Audit
Committee shall be elected for
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<PAGE>
staggered terms. The Board of Directors shall, at its first meeting after the
annual meeting of shareholders in each year, elect the successors of the members
whose terms shall then expire. The Board of Directors shall designate from time
to time the member who is to serve as chairman of the Audit Committee. The Audit
Committee shall meet with the Company's independent auditors at least once each
year to review the Company's financial statements and the scope and results of
such auditors' examinations, monitor the internal accounting controls and
practices of the Company, review the annual report to shareholders and made
recommendations as to its approval to the Board and recommend, subject to
shareholder approval, the appointment of independent auditors, and shall report
its findings at least once each year to the Board. The Audit Committee shall
have such powers as it shall deem necessary for the performance of its duties.
Vacancies in the membership of the Audit Committee shall be filled by the Board
of Directors. The Audit Committee shall keep minutes of the proceedings at its
meetings.
SECTION 3. There shall be a Corporate Governance and Compensation Committee
of the Board consisting of those Directors who are not employees or former
employees of the Company. The Board of Directors shall, at its first meeting
after the annual meeting of shareholders in each year, elect a chairman of the
Corporate Governance and Compensation Committee. The Directors serving as
members of the Committee shall serve for one year and until their respective
successors, willing to serve, shall have been elected. The Corporate Governance
and Compensation Committee shall (i) oversee corporate governance policies,
practices and procedures of the Company and make such recommendations as it may
deem appropriate to the Board; and (ii) oversee general compensation policy of
the Company, and establish and administer compensation programs applicable to
the principal officers of the Company, including but not necessarily limited to
the establishment of base salaries and the administration of awards under the
Unicom Corporation Deferred Compensation Unit Plan and the Unicom Corporation
Long-Term Incentive Plan. The Committee shall have such power as it deems
necessary for the performance of its duties. Vacancies in the membership of the
Committee shall be filled by the Board of Directors. The Committee shall keep
minutes of the proceedings at its meetings.
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<PAGE>
SECTION 4. There shall be a Finance Committee of the Board consisting of not
less than three nor more than five members. The Board of Directors shall, at its
first meeting after the annual meeting of shareholders in each year, elect a
chairman and the other members of the Finance Committee. The Directors elected
as members of the Finance Committee shall serve as such for one year and until
their respective successors, willing to serve, shall have been elected. The
Finance Committee shall review the scope and results of the Company's financing
program and review the Company's financial statements, construction budgets and
cash budgets as they relate to the Company's financing program, and shall report
its findings at least once each year to the Board. The Finance Committee shall
have such power as it shall deem necessary for the performance of its duties.
Vacancies in the membership of the Finance Committee shall be filled by the
Board of Directors. The Finance Committee shall keep minutes of the proceedings
at its meetings .
SECTION 5. There shall be a Nominating Committee of the Board consisting of
not less than three nor more than five members, a majority of whom are not
employes of the Company. The Board of Directors shall, at its first meeting
after the annual meeting of shareholders in each year, elect a chairman and the
other members of the Nominating Committee. The Directors elected as members of
the Nominating Committee shall serve as such for one year and until their
respective successors, willing to serve, shall have been elected. The Nominating
Committee shall review the requirements for serving as Director, review
potential candidates for Director, propose nominees for Director to the Board
and recommend to the Board the successor to the Chairman when a vacancy occurs
in that position. The Nominating Committee shall have such power as it shall
deem necessary for the performance of its duties. Vacancies in the membership of
the Nominating Committee shall be filled by the Board of Directors. The
Nominating Committee shall keep minutes of the proceedings at its meetings.
SECTION 6. The Board of Directors may from time to time create other
committees, standing or special, appoint Directors to serve on such committees
and confer such powers upon such committees and revoke such powers and terminate
the existence of such committees, as the Board at its pleasure may determine,
subject to the limitations set forth in Section 8.40(c) of the Illinois Business
Corporation Act of 1983, as amended from time to time.
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<PAGE>
SECTION 7. Meetings of any committee of the Board may be called at any time
by the Chairman, by any two Directors or by the chairman of the committee the
meeting of which is being called and shall be held at such place as shall be
designated in the notice of such meeting. Notice of each committee meeting
stating the time and place at which such meeting will be held shall be given to
each member of the committee personally, or by telegraph, or by depositing the
same in the mails properly addressed, at least one day before the day of such
meeting. A majority of the members of a committee shall constitute a quorum
thereof but a lesser number may adjourn the meeting from time to time until a
quorum is obtained, or may adjourn sine die. A majority vote of the members of a
committee present at a meeting at which a quorum is present shall be necessary
for committee action.
SECTION 8. The Board of Directors may from time to time designate from among
the Directors alternates to serve on one or more committees as occasion may
require. Whenever a quorum cannot be secured for any meeting of any committee
from among the regular members thereof and designated alternates, the member or
members of such committee present at such meeting and not disqualified from
voting thereat, whether or not he or they constitute a quorum, may unanimously
appoint another member of the Board of Directors to act at the meeting in place
of such absent or disqualified member.
SECTION 9. Every Director of the Company, or member of any committee
designated by the Board of Directors pursuant to authority conferred by these
By-Laws, shall, in the performance of his or her duties, be fully protected in
relying in good faith upon the records of the Company and upon such information,
opinions, reports or statements presented to the Company by any of the Company's
officers or employees, or committees of the Board of Directors, or by any other
person as to matters the Director or member reasonably believes are within such
other person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Company.
SECTION 10. Unless otherwise limited by the Board of Directors and subject to
the limitations set forth in the next sentence, each committee of the Board of
Directors consisting of two or more Directors may exercise the authority of the
Board. Notwithstanding any other provision of the By-Laws, no committee
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of the Board of Directors shall: (1) authorize distributions; (2) approve or
recommend to shareholders any act required by law to be approved by
shareholders; (3) fill vacancies on the Board of Directors or on any of its
committees; (4) elect or remove officers or fix the compensation of any member
of the committee; (5) adopt, amend or repeal the By-Laws; (6) approve a plan of
merger not requiring shareholder approval; (7) authorize or approve
reacquisition of stock, except according to a general formula or method
prescribed by the Board of Directors; (8) authorize or approve the issuance or
sale, or contract for sale, of stock or determine the designation and relative
rights, preferences, and limitations of a series of stock, except that a
committee may fix the specific terms of the issuance or sale or contract for
sale or the number of shares of stock to be allocated to particular employes
under an employe benefit plan; or (9) amend, alter, repeal, or take action
inconsistent with any resolution or action of the Board of Directors when the
resolution or action of the Board of Directors provides by its terms that it
shall not be amended, altered or repealed by action of a committee.
ARTICLE V.
OFFICERS.
SECTION 1. There shall be elected by the Board of Directors, at its first
meeting after the annual election of Directors in each year if practicable, the
following principal officers of the Company, namely: a Chairman, a President,
such number of Executive Vice Presidents, Senior Vice Presidents and Vice
Presidents as the Board at the time may decide upon, a Secretary, a Treasurer
and a Comptroller; and the Board may also provide for a Vice Chairman and such
other officers, and prescribe for each of them such duties, as in its judgment
may from time to time be desirable to conduct the affairs of the Company. No
officer shall be elected for a term extending beyond the first day of the month
following the month in which such officer attains the age of 65 years, on which
date such officer shall be retired. The Chairman shall be a Director of the
Company; any other officer above named may, but need not, be a Director of the
Company. Any two or more offices may be held by the same person. All officers
shall hold their respective offices until the first meeting of the Board of
Directors after the next
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<PAGE>
succeeding annual election of Directors and until their successors, willing to
serve, shall have been elected, but any officer may be removed from office by
the Board of Directors whenever in its judgment the best interests of the
Company will be served thereby. Such removal, however, shall be without
prejudice to the contract rights, if any, of the person so removed. Election of
an officer shall not of itself create contract rights.
SECTION 2. The Chairman shall be the chief executive officer of the
Company and shall have general authority over all the affairs of the Company,
including the power to appoint and discharge any and all officers, agents and
employes of the Company not elected or appointed directly by the Board of
Directors. The Chairman shall, when present, preside at all meetings of the
shareholders and of the Board of Directors. The Chairman shall have authority to
call special meetings of the shareholders and meetings of the Board of
Directors, and of any committee of the Board of Directors and, when neither the
Board of Directors nor the Executive Committee is in session, to suspend the
authority of any other officer or officers of the Company, subject, however, to
the pleasure of the Board of Directors or of the Executive Committee at its next
meeting. The Chairman, or such other officer as the Chairman may direct, shall
be responsible for all internal audit functions, and the internal audit
personnel shall report directly to the Chairman or to such other officer.
SECTION 3. If, at any time, it is brought to the attention of any
Director that the Chairman has or may become absent or disabled and may thereby
be unable to perform the duties of Chairman for some period of time, the Lead
Director shall, as promptly as practicable upon his own initiative, or after
notice from another Director, convene a meeting (in person or by telephone
conference call) of the Outside Directors (who for purposes hereof shall consist
of all Directors who are not and have never been employees of the Company or any
of its direct or indirect subsidiaries) who shall decide whether the Chairman
has become absent or disabled. Upon such determination, the Outside Directors
shall designate an Acting Chairman, who may be the Lead Director or any other
Director of the Company, and who shall exercise the power and duties of the
Chairman until the Outside Directors shall have determined that the Chairman can
resume his duties as Chairman or until a new Chairman has been elected by the
Board of Directors. The Acting Chairman,
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<PAGE>
however, shall have no authority to make changes in the persons holding any
office at the executive payroll level of the Company or to make changes in any
such person's duties or responsibilities, or compensation or benefits, without
prior approval of the Board of Directors. For purposes of this Section, any
action of the Outside Directors shall be by majority vote of those present at a
meeting of such Directors, provided that a majority of such Directors shall
constitute a quorum for such a meeting.
SECTION 4. Except insofar as the Board of Directors, the Executive Committee
or the Chairman shall have devolved responsibilities on the other principal
officers, the President shall be responsible for the general management and
direction of the affairs of the Company, subject to the control of the Board of
Directors, the Executive Committee and the Chairman. The President shall have
such other powers and duties as usually devolve upon the President of a
corporation and such further powers and duties as may be prescribed by the Board
of Directors, the Executive Committee or the chairman. The President shall
report to the Chairman.
SECTION 5. The Executive Vice Presidents, the Senior Vice Presidents and the
Vice Presidents shall have such powers and duties as may be prescribed for them,
respectively, by the Board of Directors, the Executive committee or the
Chairman. Each of such officers shall report to the Chairman or such other
officer as the Chairman shall direct.
SECTION 6. The Secretary shall attend all meetings of the shareholders, of
the Board of Directors and of each committee of the Board of Directors, shall
keep a true and faithful record thereof in proper books and shall have the
custody and care of the corporate seal, records, minute books and stock books of
the Company and of such other books and papers as in the practical business
operations of the Company shall naturally belong in the office or custody of the
Secretary or as shall be placed in the Secretary's custody by order of the Board
of Directors or the Executive Committee. The Secretary shall keep or cause to be
kept a suitable record of the addresses of shareholders and shall, except as may
be otherwise required by statute or the by-laws, sign and issue all notices
required for meetings of shareholders, of the Board of Directors and of the
committees of the Board of Directors. Whenever requested by the requisite number
of shareholders or Directors, the Secretary shall give notice,
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<PAGE>
in the name of the shareholder or shareholders or Director or Directors making
the request, of a meeting of the shareholders or of the Board of Directors or of
a committee of the Board of Directors, as the case may be. The Secretary shall
sign all papers to which the Secretary's signature may be necessary or
appropriate, shall affix and attest the seal of the Company to all instruments
requiring the seal, shall have the authority to certify the by-laws, resolutions
of the shareholders and Board of Directors and committees of the Board of
Directors and other documents of the Company as true and correct copies thereof
and shall have such other powers and duties as are commonly incidental to the
office of Secretary and as may be prescribed by the Board of Directors, the
Executive Committee or the Chairman. The Secretary shall report to the Chairman
or such other officer as the Chairman shall direct.
SECTION 7. The Treasurer shall have charge of and be responsible for the
collection, receipt, custody and disbursement of the funds of the Company. The
Treasurer shall deposit the Company's funds in its name in such banks, trust
companies or safe deposit vaults as the Board of Directors may direct. Such
funds shall be subject to withdrawal only upon checks or drafts signed or
authenticated in such manner as may be designated from time to time by
resolution of the Board of Directors or of the Executive Committee. The
Treasurer shall have the custody of such books and papers as in the practical
business operations of the Company shall naturally belong in the office or
custody of the Treasurer or as shall be placed in the Treasurer's custody by
order of the Board of Directors or the Executive Committee. The Treasurer shall
have such other powers and duties as are commonly incidental to the office of
Treasurer or as may be prescribed for the Treasurer by the Board of Directors,
the Executive Committee or the Chairman. Securities owned by the Company shall
be in the custody of the Treasurer or of such other officers, agents or
depositaries as may be designated by the Board of Directors or the Executive
Committee. The Treasurer may be required to give bond to the Company for the
faithful discharge of the duties of the Treasurer in such form and in such
amount and with such surety as shall be determined by the Board of Directors.
The Treasurer shall report to the Chairman or such other officer as the Chairman
shall direct.
SECTION 8. The Comptroller shall be responsible for the executive direction
of the accounting organization and shall
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have functional supervision over the records of all other departments pertaining
to revenues, expenses, money, securities, properties, materials and supplies.
The Comptroller shall prescribe the form of all vouchers, accounts and
accounting procedures, and reports required by the various departments. The
Comptroller shall be responsible for the preparation and interpretation of all
accounting reports and financial statements as required and for the proper
review and approval of all bills received for payment. No bill or voucher shall
be so approved unless the charges covered by the bill or voucher shall have been
previously approved through job order, requisition or otherwise by the head of
the department in which it originated, or unless the Comptroller shall otherwise
be satisfied of its propriety and correctness. The Comptroller shall have such
other powers and duties as are commonly incidental to the office of Comptroller
or as may be prescribed for the Comptroller by the Board of Directors, the
Executive Committee or the Chairman. The Comptroller may be required to give
bond to the Company for the faithful discharge of the duties of the Comptroller
in such form and in such amount and with such surety as shall be determined by
the Board of Directors. The Comptroller shall report to the Chairman or such
other officer as the Chairman shall direct.
SECTION 9. Assistant Secretaries, Assistant Treasurers and Assistant
Comptrollers, when elected or appointed, shall respectively assist the
Secretary, the Treasurer and the Comptroller in the performance of the
respective duties assigned to such principal officers, and in assisting such
principal officer, each of such assistant officers shall for such purpose have
the powers of such principal officer. In case of the absence, disability, death,
resignation or removal from office of any principal officer, such principal
officer's duties shall, except as otherwise ordered by the Board of Directors or
the Executive Committee, temporarily devolve upon such assistant officer as
shall be designated by the Chairman.
SECTION 10. At least once each year, the Chairman shall report (which may be
oral) to the Outside Directors (who for purposes hereof shall consist of all
Directors who are not and never have been employees of the Company or any of its
direct or indirect subsidiaries) on the status of a plan for succession to the
office of Chairman.
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<PAGE>
ARTICLE VI.
INDEMNIFICATION.
SECTION 1. (a) A Director of the Company shall not be personally liable to
the Company or its shareholders for monetary damages for breach of fiduciary
duty as a Director, except for liability (i) for any breach of the Director's
duty of loyalty to the Company or its shareholders, (ii) for acts or omissions
not in good faith or that involve intentional misconduct or a knowing violation
of law, (iii) under Section 8.65 of the Illinois Business Corporation Act of
1983, as amended, or (iv) for any transaction from which the Director derived an
improper personal benefit. If the Illinois Business Corporation Act of 1983 is
amended to authorize corporate action further eliminating or limiting the
personal liability of Directors, then the liability of a Director of the Company
shall be eliminated or limited to the full extent permitted by the Illinois
Business Corporation Act of 1983, as so amended. Any repeal or modification of
this Section 1(a) by the shareholders of the Company shall not adversely affect
any right or protection of a Director of the Company existing at the time of
such repeal or modification.
(b) Each person who is or was or had agreed to become a Director or officer
of the Company, and each person who is or was serving or who had agreed to serve
at the request of the Board of Directors or an officer of the Company as an
employe or agent of the Company or as a director, officer, employe, or agent,
trustee or fiduciary of another corporation, partnership, joint venture, trust
or other enterprise (including the heirs, executors, administrators or estate of
such person), shall be indemnified by the Company to the full extent permitted
by the Illinois Business Corporation Act of 1983 or any other applicable laws as
presently or hereafter in effect. Without limiting the generality of the
foregoing, the Company may enter into one or more agreements with any person
which provide for indemnification greater or different than that provided in
this Section 1(b). Any repeal or modification of this Section 1(b) shall not
adversely affect any right or protection existing hereunder immediately prior to
such repeal or modification.
SECTION 2. The provisions of this Article shall be deemed to be a contract
between the Company and each Director or officer who serves in any such capacity
at any time while this
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<PAGE>
Article is in effect, and any repeal or modification of this Article shall not
affect any rights or obligations hereunder with respect to any state of facts
then or theretofore existing or any action, suit or proceeding theretofore or
thereafter brought or threatened based in whole or in part upon any such state
of facts.
SECTION 3. The indemnification provided or permitted by this Article shall
not be deemed exclusive of any other rights to which those indemnified may be
entitled by law or otherwise, and shall continue as to a person who has ceased
to be a Director, officer, employee or agent and shall inure to the benefit of
the heirs, executors and administrators of such person.
SECTION 4. The Company may purchase and maintain insurance on behalf of any
person who is or was a Director, officer, employee or agent of the Company, or
who is or was serving at the request of the Company as a director, officer,
employee or agent of another corporation or of a partnership, joint venture,
trust or other enterprise, against any liability asserted against such person
and incurred by such person in any such capacity, or arising out of his or her
status as such, whether or not the Company would have the power to indemnify
such person against such liability under the laws of the State of Illinois.
ARTICLE VII.
MISCELLANEOUS.
SECTION 1. No bills shall be paid by the Treasurer unless reviewed and
approved by the Comptroller or by some other person or committee expressly
authorized by the Board of Directors, the Executive Committee, the Chairman or
the Comptroller to review and approve bills for payment.
SECTION 2. All checks, drafts or other orders for payment of money issued in
the name of the Company shall be signed by such officers, employees or agents of
the Company as shall from time to time be designated by the Board of Directors,
the Chairman, the chief financial officer of the Company or the Treasurer.
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<PAGE>
SECTION 3. Any and all shares of stock of any corporation owned by the
Company and any and all voting trust certificates owned by the Company calling
for or representing shares of stock of any corporation may be voted at any
meeting of the shareholders of such corporation or at any meeting of the holders
of such certificates, as the case may be, by any one of the principal officers
of the Company upon any question which may be presented at such meeting, and any
such officer may, on behalf of the Company, waive any notice required to be
given of the calling of such meeting and consent to the holding of any such
meeting without notice. Any such principal officer other than the Secretary,
acting together with the Secretary or an Assistant Secretary, shall have
authority to give to any person a written proxy, in the name of the Company and
under its corporate seal, to vote any or all shares of stock or any or all
voting trust certificates owned by the Company upon any question that may be
presented at any such meeting of shareholders or certificate holders, with full
power to waive any notice of the calling of such meeting and consent to the
holding of such meeting without notice.
SECTION 4. The fiscal year of the Company shall begin on the first day of
January and end on the last day of December in each year.
ARTICLE VIII.
ALTERATION, AMENDMENT OF REPEAL OF BY-LAWS.
These by-laws may be altered, amended or repealed by the shareholders or the
Board of Directors.
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<PAGE>
Exhibit (3)-4
Commonwealth Edison Company
Form 10-K File No. 1-1839
Commonwealth Edison Company
By-Laws
Effective September 2, 1988
As Amended Through
March 11, 1998
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C> <C>
ARTICLE I. Stock.................................................. 1
ARTICLE II. Meetings of Stockholders............................... 2
ARTICLE III. Board of Directors..................................... 4
ARTICLE IV. Committees of the Board of Directors................... 5
ARTICLE V. Officers............................................... 9
ARTICLE VI. Miscellaneous.......................................... 13
ARTICLE VII. Alteration, Amendment or Repeal of By-Laws............. 14
</TABLE>
<PAGE>
Commonwealth Edison Company
By-Laws
-----
ARTICLE I.
Stock.
Section 1. Each holder of fully paid stock shall be entitled to a
certificate or certificates of stock stating the number and class of shares, and
the designation of the series, if any, which such certificate represents. All
certificates of stock shall at the time of their issuance be signed either
manually or by facsimile signature by the Chairman, the President or a Vice
President and by the Secretary or an Assistant Secretary. All certificates of
stock shall be sealed with the seal of the Company or a facsimile of such seal,
shall be countersigned either manually or by facsimile signature by a Transfer
Agent and shall be authenticated by manual signature and registered by a
Registrar. The Board of Directors shall appoint one or more Transfer Agents,
none of whom shall be officers of the Company authorized to sign certificates of
stock, and one or more Registrars, each of which Registrars shall be a bank or
trust company. Certificates of stock shall not be valid until countersigned by a
Transfer Agent and authenticated and registered by a Registrar in the manner
provided by the Board of Directors.
Section 2. Shares of stock shall be transferable only on the books of
the Company and, except as hereinafter provided or as otherwise required by law,
shall be transferred only upon proper endorsement and surrender of the
certificates issued therefor. If an outstanding certificate of stock shall be
lost, destroyed or stolen, the holder thereof may have a new certificate upon
producing evidence satisfactory to the Board of Directors of such loss,
destruction or theft, and upon furnishing to the Company, the Transfer Agents
and the Registrars a bond of indemnity deemed sufficient by the Board of
Directors against claims under the outstanding certificate.
Section 3. The certificates for each class or series of stock shall be
numbered and issued in consecutive order and a record shall be kept of the name
and address of the person to whom each certificate is issued, the number of
shares represented by the certificate and the number and date of the
certificate. All certificates exchanged or returned to the Company for transfer
shall be canceled and filed.
<PAGE>
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Section 4. For the purpose of determining stockholders entitled to
notice of or to vote at any meeting of stockholders, or stockholders entitled to
receive payment of any dividend, or in order to make a determination of
stockholders for any other proper purpose, the Board of Directors may fix in
advance a date as the record date for any such determination for stockholders,
such date in any case to be not more than sixty days and, for a meeting of
stockholders, not less than ten days, or in the case of a merger, consolidation,
share exchange, dissolution or sale, lease or exchange of assets, not less than
twenty days, immediately preceding such meeting.
Section 5. If any subscription for stock in the Company or any
installment of such subscription shall be unpaid when due, as the Board of
Directors shall have determined the time for payment, and shall continue unpaid
for twenty days after demand for the amount due, made either in person or by
written notice duly mailed to the last address, as it appears on the records of
the Company, of the subscriber or other person by whom the subscription or
installment shall be payable, the stock or subscription upon which payment shall
be so due shall, upon the expiration of said twenty days, become and be
forfeited to the Company without further action, demand or notice, and such
stock or subscription may be sold at public sale, subject to payment of the
amount due and unpaid, plus all costs and expenses incurred by the Company in
that connection, at a time and place to be stated in a written notice to be
mailed to the recorded address of the delinquent subscriber or other person in
default on the subscription at least ten days prior to the time fixed for such
sale; provided, that the excess of proceeds of such sale realized over the
amount due and unpaid on said stock or subscription shall be paid to the
delinquent subscriber or other person in default on the subscription, or to his
or her legal representative; and, provided further, that no forfeiture of stock,
or of any amounts paid upon a subscription therefor, shall be declared as
against the estate of any decedent before distribution shall have been made of
the estate.
The foregoing provisions for the forfeiture and sale of stock or
subscriptions shall not exclude any other remedy which may lawfully be
enforceable at any time, by forfeiture of stock or of amounts theretofore paid
or otherwise, against any person for nonpayment of a subscription or of any
installment thereof.
ARTICLE II.
Meetings of Stockholders.
Section 1. The regular annual meeting of the stockholders of the
Company for the election of Directors and for the transaction of such other
business as may come before the meeting shall be held on such day in April or
May of each year as the Board of Directors may by resolution determine. Each
such regular annual meeting and each special meeting of the stockholders shall
be held at such place as may
<PAGE>
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be fixed by the Board of Directors and at such hour as the Board of Directors
shall order.
Section 2. Special meetings of the stockholders may be called by the
Chairman, by the Board of Directors, by a majority of the Directors individually
or by the holders of not less than one-fifth of the total outstanding shares of
capital stock of the Company.
Section 3. Written notice stating the place, day and hour of the
meeting of the stockholders and, in the case of a special meeting, the purpose
or purposes for which the meeting is called shall be delivered not less than ten
nor more than sixty days before the date of the meeting, or in the case of a
merger, consolidation, share exchange, dissolution or sale, lease or exchange of
assets not less than twenty nor more than sixty days before the date of the
meeting, either personally or by mail, by or at the direction of the Chairman,
the Secretary or the persons calling the meeting, to each stockholder of record
entitled to vote at such meeting. If mailed, such notice shall be deemed to be
delivered when deposited in the United States mail addressed to the stockholder
at the stockholder's address as it appears upon the records of the Company, with
postage thereon prepaid.
Section 4. At all meetings of the stockholders, a majority of the
outstanding shares of stock, entitled to vote on a matter, represented in person
or by proxy, shall constitute a quorum for consideration of such matter, but the
stockholders represented at any meeting, though less than a quorum, may adjourn
the meeting to some other day or sine die. If a quorum is present, the
affirmative vote of the majority of the shares of stock represented at the
meeting and entitled to vote on a matter shall be the act of the stockholders,
unless the vote of a greater number or voting by classes is required by law or
the articles of incorporation.
Section 5. At every meeting of the stockholders, each outstanding share
of stock shall be entitled to one vote on each matter submitted for a vote. In
all elections for Directors, every stockholder shall have the right to vote the
number of shares owned by such stockholder for as many persons as there are
Directors to be elected, or to cumulate such votes and give one candidate as
many votes as shall equal the number of Directors to be elected multiplied by
the number of such shares or to distribute such cumulative votes in any
proportion among any number of candidates. A stockholder may vote either in
person or by proxy. A stockholder may appoint a proxy to vote or otherwise act
for him or her by signing an appointment form and delivering it to the person so
appointed.
Section 6. The Secretary of the Company shall make, within twenty days
after the record date for a meeting of stockholders of the Company or ten days
before such meeting, whichever is earlier, a complete list of the stockholders
entitled to vote at such meeting,
<PAGE>
-4-
arranged in alphabetical order, with the address of and the number of shares
held by each, which list, for at least ten days prior to such meeting, shall be
kept on file at the registered office of the Company and shall be subject to
inspection by any stockholder, and to copying at such stockholder's expense, at
any time during usual business hours. Such list shall also be produced and kept
open at the time and place of the meeting and shall be subject to the inspection
of any stockholder during the whole time of the meeting.
Section 7. The Chairman and the Secretary of the Company shall, when
present, act as chairman and secretary, respectively, of each meeting of the
stockholders.
Section 8. At any meeting of stockholders, the chairman of the meeting
may, or upon the request of any stockholder shall, appoint one or more persons
as inspectors for such meeting, unless an inspector or inspectors shall have
been previously appointed for such meeting by the Chairman. Such inspectors
shall ascertain and report the number of shares of stock represented at the
meeting, based upon their determination of the validity and effect of proxies,
count all votes and report the results and do such other acts as are proper to
conduct the election and voting with impartiality and fairness to all the
stockholders.
ARTICLE III.
Board of Directors.
Section 1. The business and affairs of the Company shall be managed by
or under the direction of the Board of Directors. The number of Directors of the
Company shall be not less than eight nor more than thirteen. The Directors shall
be elected at each annual meeting of the stockholders, but if for any reason the
election shall not be held at an annual meeting, it may be subsequently held at
any special meeting of the stockholders called for that purpose after proper
notice. The Directors so elected shall hold office until the next annual meeting
and until their respective successors, willing to serve, shall have been elected
and qualified. Directors need not be residents of the State of Illinois or
stockholders of the Company. No person shall be eligible for nomination or
renomination as a Director by the management of the Company who, prior to the
date of election, shall have attained age seventy-two.
No person who is an employe or a former employe of the Company or of a
subsidiary of the Company shall be eligible for nomination or renomination as a
Director by the management of the Company for a term commencing after such
person ceases to be such an employe; provided, however that any Director in
office on June 15, 1989 who is or has been such an employe may be renominated as
a Director unless such person shall have attained age sixty-five on or before
the date of election of Directors.
<PAGE>
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Section 2. A meeting of the Board of Directors shall be held
immediately, or as soon as practicable, after the annual election of Directors
in each year, provided a quorum for such meeting can be obtained. Notice of
every meeting of the Board, stating the time and place at which such meeting
will be held, shall be given to each Director personally, by telephone or by
other means of communication at least one day, or by depositing the same in the
mails properly addressed at least two days before the day of such meeting. A
meeting of the Board of Directors may be called at any time by the Chairman or
by any two Directors and shall be held at such place as shall be specified in
the notice for such meeting.
Section 3. A majority of the number of Directors then in office, but
not less than six, shall constitute a quorum for the transaction of business at
any meeting of the Board, but a lesser number may adjourn the meeting from time
to time until a quorum is obtained, or may adjourn sine die. The act of the
majority of the Directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors.
Section 4. Each member of the Board not receiving a salary from the
Company or a subsidiary of the Company shall be paid such fees as the Board of
Directors may from time to time, by resolution adopted by the affirmative vote
of a majority of the Directors then in office, determine.
Section 5. At the first meeting of the Board of Directors following the
annual meeting of shareholders each year, the Board shall elect a Lead Director.
The Lead Director shall be elected from among the Outside Directors of the
Company. For purposes hereof, "Outside Directors" shall be those who are not and
never have been employees of the Company or any of its direct or indirect
subsidiaries. The duties of the Lead Director shall be to convene and chair
meetings of the Outside Directors and to assume other responsibilities which the
Outside Directors might designate from time to time. The Lead Director will
consult with other Outside Directors as to appropriate items for discussion at
each such meeting.
ARTICLE IV.
Committees of the Board of Directors.
Section 1. There shall be an Executive Committee of the Board
consisting of not less than three nor more than six members. The Board of
Directors shall, at its first meeting after the annual meeting of the
stockholders in each year, elect a chairman and the other members of the
Executive Committee. The remaining Directors shall constitute alternates to
serve temporarily, and as far as practicable in rotation (in such order as shall
be established by the Board), in the place of any member who may be unable to
serve. The
<PAGE>
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Chairman or the Directors calling a meeting of the Executive Committee shall
call upon alternates, in rotation, to serve as herein provided. When any
alternate serves, the minutes of the meeting shall record the name of the member
in whose place such alternate serves. The Directors elected as members of the
Executive Committee shall serve as such for one year and until their respective
successors, willing to serve, shall have been elected. The Executive Committee
shall, when the Board is not in session, have and may exercise all of the
authority of the Board of Directors, subject to the limitations set forth in
Section 10 of this Article IV. Vacancies in the membership of the Executive
Committee shall be filled by the Board of Directors. The Executive Committee
shall keep minutes of the proceedings at its meetings.
Section 2. There shall be an Audit Committee of the Board consisting of
not less than three nor more than five members who are not employes of the
Company. The Directors elected as members of the Audit Committee shall serve as
such for three years and until their respective successors, willing to serve,
shall have been elected, provided that, to the extent practicable, the members
of the Audit Committee shall be elected for staggered terms. The Board of
Directors shall, at its first meeting after the annual meeting of stockholders
in each year, elect the successors of the members whose terms shall then expire.
The Board of Directors shall designate from time to time the member who is to
serve as chairman of the Audit Committee. The Audit Committee shall meet with
the Company's independent auditors at least once each year to review the
Company's financial statements and the scope and results of such auditors'
examinations, monitor the internal accounting controls and practices of the
Company, review the annual report to stockholders and make recommendations as to
its approval to the Board and recommend, subject to stockholder approval, the
appointment of independent auditors, and shall report its findings at least once
each year to the Board. The Audit Committee shall have such powers as it shall
deem necessary for the performance of its duties. Vacancies in the membership of
the Audit Committee shall be filled by the Board of Directors. The Audit
Committee shall keep minutes of the proceedings at its meetings.
Section 3. There shall be a Corporate Governance and Compensation
Committee of the Board consisting of those Directors who are not employees or
former employees of the Company. The Board of Directors shall, at its first
meeting after the annual meeting of shareholders in each year, elect a chairman
of the Corporate Governance and Compensation Committee. The Directors serving as
members of the Committee shall serve for one year and until their respective
successors, willing to serve, shall have been elected. The Corporate Governance
and Compensation Committee shall (i) oversee corporate governance policies,
practices and procedures of the Company and make such recommendations as it may
deem appropriate to the Board; and (ii) oversee general compensation policy of
the Company, and establish and administer compensation programs applicable to
the
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principal officers of the Company, including but not necessarily limited to the
establishment of base salaries and the administration of awards under the
Commonwealth Edison Company Deferred Compensation Plan and any other
Commonwealth Edison Company compensation plan. The Committee shall have such
power as it deems necessary for the performance of its duties. Vacancies in the
membership of the Committee shall be filled by the Board of Directors. The
Committee shall keep minutes of the proceedings at its meetings.
Section 4. There shall be a Finance Committee of the Board consisting
of not less than three nor more than five members. The Board of Directors shall,
at its first meeting after the annual meeting of stockholders in each year,
elect a chairman and the other members of the Finance Committee. The Directors
elected as members of the Finance Committee shall serve as such for one year and
until their respective successors, willing to serve, shall have been elected.
The Finance Committee shall review the scope and results of the Company's
financing program and review the Company's financial statements, construction
budgets and cash budgets as they relate to the Company's financing program, and
shall report its findings at least once each year to the Board. The Finance
Committee shall have such power as it shall deem necessary for the performance
of its duties. Vacancies in the membership of the Finance Committee shall be
filled by the Board of Directors. The Finance Committee shall keep minutes of
the proceedings at its meetings.
Section 5. There shall be a Nominating Committee of the Board
consisting of not less than three nor more than five members, a majority of whom
are not employes of the Company. The Board of Directors shall, at its first
meeting after the annual meeting of stockholders in each year, elect a chairman
and the other members of the Nominating Committee. The Directors elected as
members of the Nominating Committee shall serve as such for one year and until
their respective successors, willing to serve, shall have been elected. The
Nominating Committee shall review the requirements for serving as Director,
review potential candidates for Director, propose nominees for Director to the
Board and recommend to the Board the successor to the Chairman when a vacancy
occurs in that position. The Nominating Committee shall have such power as it
shall deem necessary for the performance of its duties. Vacancies in the
membership of the Nominating Committee shall be filled by the Board of
Directors. The Nominating Committee shall keep minutes of the proceedings at its
meetings.
Section 6. There shall be a Nuclear Oversight Committee of the Board
consisting of not less than three nor more than five members. The Board of
Directors shall, at its first meeting after the annual meeting of stockholders
in each year, elect a chairman and other members of the Nuclear Oversight
Committee. The Directors elected as members of the Nuclear Oversight Committee
shall serve as such for one year and until their respective successors, willing
to
<PAGE>
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serve, shall have been elected. The Nuclear Oversight Committee shall monitor
the performance and safety of the Company's nuclear facilities, provide Nuclear
Generation Group management with input in establishing performance goals, review
management effectiveness in achieving such goals, provide oversight to the
implementation of strategies to achieve such goals, periodically visit and
inspect the nuclear facilities, and periodically meet with external oversight
groups; and the Committee shall periodically (at least annually) report its
findings and recommendations, if any, to the Board. The Nuclear Oversight
Committee shall have such powers as it shall deem necessary for the performance
of its duties. Vacancies in the membership of the Nuclear Oversight Committee
shall be filled by the Board of Directors. The Nuclear Oversight Committee shall
keep minutes of the proceedings at its meetings.
Section 7. There shall be a Regulatory and Environmental Affairs
Committee of the Board consisting of not less than three nor more than five
members. The Board of Directors shall, at its first meeting after the annual
meeting of stockholders in each year, elect a chairman and the other members of
the Regulatory and Environmental Affairs Committee. The Directors elected as
members of the Regulatory and Environmental Affairs Committee shall serve as
such for one year and until their respective successors, willing to serve, shall
have been elected. The Regulatory and Environmental Affairs Committee shall
review the Company's relationships with economic and environmental regulatory
agencies that exercise significant regulatory jurisdiction over the Company, and
shall review significant matters involving the Company before those agencies; it
shall review the Company's policies and strategic plans respecting regulatory
and environmental affairs; and it shall report its findings at least once each
year to the Board. The Regulatory and Environmental Affairs Committee shall have
such power as it shall deem necessary for the performance of its duties.
Vacancies in the membership of the Regulatory and Environmental Affairs
Committee shall be filled by the Board of Directors. The Regulatory and
Environmental Affairs Committee shall keep minutes of the proceedings at its
meetings.
Section 8. The Board of Directors may from time to time create other
committees, standing or special, appoint Directors to serve on such committees
and confer such powers upon such committees and revoke such powers and terminate
the existence of such committees, as the Board at its pleasure may determine,
subject to the limitations set forth in Section 10 of this Article IV.
Section 9. Meetings of any committee of the Board may be called at any
time by the Chairman, by any two Directors or by the chairman of the committee
the meeting of which is being called and shall be held at such place as shall be
designated in the notice of such meeting. Notice of each committee meeting
stating the time and place at which such meeting will be held shall be given to
each member of the committee personally, or by telegraph, or by depositing the
<PAGE>
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same in the mails properly addressed, at least one day before the day of such
meeting. A majority of the members of a committee shall constitute a quorum
thereof but a lesser number may adjourn the meeting from time to time until a
quorum is obtained, or may adjourn sine die. A majority vote of the members of a
committee present at a meeting at which a quorum is present shall be necessary
for committee action.
Section 10. Unless otherwise limited by the Board of Directors and
subject to the limitations set forth in the next sentence, each committee of the
Board of Directors consisting of two or more Directors may exercise the
authority of the Board. Notwithstanding any other provision of the by-laws, no
committee of the Board of Directors shall: (1) authorize distributions; (2)
approve or recommend to stockholders any act required by law to be approved by
stockholders; (3) fill vacancies on the Board of Directors or on any of its
committees; (4) elect or remove officers or fix the compensation of any member
of the committee; (5) adopt, amend or repeal the by-laws; (6) approve a plan of
merger not requiring stockholder approval; (7) authorize or approve
reacquisition of stock, except according to a general formula or method
prescribed by the Board of Directors; (8) authorize or approve the issuance or
sale, or contract for sale, of stock or determine the designation and relative
rights, preferences, and limitations of a series of stock, except that a
committee may fix the specific terms of the issuance or sale or contract for
sale or the number of shares of stock to be allocated to particular employes
under an employe benefit plan; or (9) amend, alter, repeal, or take action
inconsistent with any resolution or action of the Board of Directors when the
resolution or action of the Board of Directors provides by its terms that it
shall not be amended, altered or repealed by action of a committee.
ARTICLE V.
Officers.
Section 1. There shall be elected by the Board of Directors, at its
first meeting after the annual election of Directors in each year if
practicable, the following principal officers of the Company, namely: a
Chairman, a President, such number of Executive Vice Presidents, Senior Vice
Presidents and Vice Presidents as the Board at the time may decide upon, a
Secretary, a Treasurer and a Comptroller; and the Board may also provide for a
Vice Chairman and such other officers, and prescribe for each of them such
duties, as in its judgment may from time to time be desirable to conduct the
affairs of the Company. No officer shall be elected for a term extending beyond
the first day of the month following the month in which such officer attains the
age of 65 years, on which date such officer shall be retired. The Chairman shall
be a Director of the Company; any other officer above named may, but need not,
be a Director of the Company. Any two or more offices may be held by the same
person, except that
<PAGE>
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one person may not at the same time hold the office of Chairman or President and
the office of Secretary. All officers shall hold their respective offices until
the first meeting of the Board of Directors after the next succeeding annual
election of Directors and until their successors, willing to serve, shall have
been elected, but any officer may be removed from office by the Board of
Directors whenever in its judgment the best interests of the Company will be
served thereby. Such removal, however, shall be without prejudice to the
contract rights, if any, of the person so removed. Election of an officer shall
not of itself create contract rights.
Section 2. The Chairman shall be the chief executive officer of the
Company and shall have general authority over all the affairs of the Company,
including the power to appoint and discharge any and all officers, agents and
employes of the Company not elected or appointed directly by the Board of
Directors. The Chairman shall, when present, preside at all meetings of the
stockholders and of the Board of Directors. The Chairman shall have authority to
call special meetings of the stockholders and meetings of the Board of
Directors, and of any committee of the Board of Directors and, when neither the
Board of Directors nor the Executive Committee is in session, to suspend the
authority of any other officer or officers of the Company, subject, however, to
the pleasure of the Board of Directors or of the Executive Committee at its next
meeting. The Chairman, or such other officer as the Chairman may direct, shall
be responsible for all internal audit functions, and internal audit personnel
shall report directly to the Chairman or to such other officer.
Section 3. If, at any time, it is brought to the attention of any
Director that the Chairman has or may become absent or disabled and may thereby
be unable to perform the duties of Chairman for some period of time, the Lead
Director shall, as promptly as practicable upon his own initiative, or after
notice from another Director, convene a meeting (in person or by telephone
conference call) of the Outside Directors (who for purposes hereof shall consist
of all Directors who are not and have never been employees of the Company or any
of its direct or indirect subsidiaries) who shall decide whether the Chairman
has become absent or disabled. Upon such determination the Outside Directors
shall designate an Acting Chairman, who may be the Lead Director or any other
Director of the Company, and who shall exercise the power and duties of the
Chairman until the Outside Directors shall have determined that the Chairman can
resume his duties as Chairman or until a new Chairman has been elected by the
Board of Directors. The Acting Chairman, however, shall have no authority to
make changes in the persons holding any office at the executive payroll level of
the Company or to make changes in any such person's duties or responsibilities,
or compensation or benefits, without prior approval of the Board of Directors.
For purposes of this Section, any action of the Outside Directors shall be by
majority vote of those present at a meeting of such Directors, provided that a
<PAGE>
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majority of such Directors shall constitute a quorum for such a meeting.
Section 4. Except insofar as the Board of Directors, the Executive
Committee or the Chairman shall have devolved responsibilities on the other
principal officers, the President shall be responsible for the general
management and direction of the affairs of the Company, subject to the control
of the Board of Directors, the Executive Committee and the Chairman. The
President shall have such other powers and duties as usually devolve upon the
President of a corporation and such further powers and duties as may be
prescribed by the Board of Directors, the Executive Committee or the Chairman.
The President shall report to the Chairman.
Section 5. The Executive Vice Presidents, the Senior Vice Presidents
and the Vice Presidents shall have such powers and duties as may be prescribed
for them, respectively, by the Board of Directors, the Executive Committee or
the Chairman. Each of such officers shall report to the Chairman or such other
officer as the Chairman shall direct.
Section 6. The Secretary shall attend all meetings of the stockholders,
of the Board of Directors and of each committee of the Board of Directors, shall
keep a true and faithful record thereof in proper books and shall have the
custody and care of the corporate seal, records, minute books and stock books of
the Company and of such other books and papers as in the practical business
operations of the Company shall naturally belong in the office or custody of the
Secretary or as shall be placed in the Secretary's custody by order of the Board
of Directors or the Executive Committee. The Secretary shall keep a suitable
record of the addresses of stockholders and shall, except as may be otherwise
required by statute or the by-laws, sign and issue all notices required for
meetings of stockholders, of the Board of Directors and of the committees of the
Board of Directors. Whenever requested by the requisite number of stockholders
or Directors, the Secretary shall give notice, in the name of the stockholder or
stockholders or Director or Directors making the request, of a meeting of the
stockholders or of the Board of Directors or of a committee of the Board of
Directors, as the case may be. The Secretary shall sign all papers to which the
Secretary's signature may be necessary or appropriate, shall affix and attest
the seal of the Company to all instruments requiring the seal, shall have the
authority to certify the by-laws, resolutions of the stockholders and Board of
Directors and committees of the Board of Directors and other documents of the
Company as true and correct copies thereof and shall have such other powers and
duties as are commonly incidental to the office of Secretary and as may be
prescribed by the Board of Directors, the Executive Committee or the Chairman.
The Secretary shall report to the Chairman or such other officer as the Chairman
shall direct.
<PAGE>
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Section 7. The Treasurer shall have charge of and be responsible for
the collection, receipt, custody and disbursement of the funds of the Company.
The Treasurer shall deposit the Company's funds in its name in such banks, trust
companies or safe deposit vaults as the Board of Directors may direct. Such
funds shall be subject to withdrawal only upon checks or drafts signed or
authenticated in such manner as may be designated from time to time by
resolution of the Board of Directors or of the Executive Committee. The
Treasurer shall have the custody of such books and papers as in the practical
business operations of the Company shall naturally belong in the office or
custody of the Treasurer or as shall be placed in the Treasurer's custody by
order of the Board of Directors or the Executive Committee. The Treasurer shall
have such other powers and duties as are commonly incidental to the office of
Treasurer or as may be prescribed for the Treasurer by the Board of Directors,
the Executive Committee or the Chairman. Securities owned by the Company shall
be in the custody of the Treasurer or of such other officers, agents or
depositaries as may be designated by the Board of Directors or the Executive
Committee. The Treasurer may be required to give bond to the Company for the
faithful discharge of the duties of the Treasurer in such form and in such
amount and with such surety as shall be determined by the Board of Directors.
The Treasurer shall report to the Chairman or such other officer as the Chairman
shall direct.
Section 8. The Comptroller shall be responsible for the executive
direction of the accounting organization and shall have functional supervision
over the records of all other departments pertaining to revenues, expenses,
money, securities, properties, materials and supplies. The Comptroller shall
prescribe the form of all vouchers, accounts and accounting procedures, and
reports required by the various departments. The Comptroller shall be
responsible for the preparation and interpretation of all accounting reports and
financial statements as required and for the proper review and approval of all
bills received for payment. No bill or voucher shall be so approved unless the
charges covered by the bill or voucher shall have been previously approved
through job order, requisition or otherwise by the head of the department in
which it originated, or unless the Comptroller shall otherwise be satisfied of
its propriety and correctness. The Comptroller shall have such other powers and
duties as are commonly incidental to the office of Comptroller or as may be
prescribed for the Comptroller by the Board of Directors, the Executive
Committee or the Chairman. The Comptroller may be required to give bond to the
Company for the faithful discharge of the duties of the Comptroller in such form
and in such amount and with such surety as shall be determined by the Board of
Directors. The Comptroller shall report to the Chairman or such other officer as
the Chairman shall direct.
Section 9. Assistant Secretaries, Assistant Treasurers and Assistant
Comptrollers, when elected or appointed, shall respectively
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assist the Secretary, the Treasurer and the Comptroller in the performance of
the respective duties assigned to such principal officers, and in assisting such
principal officer, each of such assistant officers shall for such purpose have
the powers of such principal officer. In case of the absence, disability, death,
resignation or removal from office of any principal officer, such principal
officer's duties shall, except as otherwise ordered by the Board of Directors or
the Executive Committee, temporarily devolve upon such assistant officer as
shall be designated by the Chairman.
Section 10. At least once each year, the Chairman shall report (which
may be oral) to the Outside Directors (who for purposes hereof shall consist of
all Directors who are not and never have been employees of the Company or any of
its direct subsidiaries) on the status of a plan for succession to the office of
Chairman.
ARTICLE VI.
Miscellaneous.
Section 1. No bills shall be paid by the Treasurer unless reviewed and
approved by the Comptroller or by some other person or committee expressly
authorized by the Board of Directors, the Executive Committee, the Chairman or
the Comptroller to review and approve bills for payment.
Section 2. Any and all shares of stock of any corporation owned by the
Company and any and all voting trust certificates owned by the Company calling
for or representing shares of stock of any corporation may be voted at any
meeting of the stockholders of such corporation or at any meeting of the holders
of such certificates, as the case may be, by any one of the principal officers
of the Company upon any question which may be presented at such meeting, and any
such officer may, on behalf of the Company, waive any notice required to be
given of the calling of such meeting and consent to the holding of any such
meeting without notice. Any such principal officer other than the Secretary,
acting together with the Secretary or an Assistant Secretary, shall have
authority to give to any person a written proxy, in the name of the Company and
under its corporate seal, to vote any or all shares of stock or any or all
voting trust certificates owned by the Company upon any question that may be
presented at any such meeting of stockholders or certificate holders, with full
power to waive any notice of the calling of such meeting and consent to the
holding of such meeting without notice.
Section 3. The fiscal year of the Company shall begin on the first day
of January and end on the last day of December in each year.
Section 4. The Company shall indemnify the Directors, officers and
employes of the Company, and shall have the power to indemnify other agents of
the Company and any person acting or serving
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at the request of the Company as a director, officer, employe or agent of
another corporation, partnership, joint venture, trust or other enterprise, in
accordance with and to the extent permitted by Section 8.75 of The Business
Corporation Act of 1983 of the State of Illinois, as from time to time amended
and in effect. Such indemnification shall be available to any past, present or
future Director, officer or employe of the Company, and may be available to any
past, present or future agent of the Company and any past, present or future
director, officer, employe or agent of such other corporation, partnership,
joint venture, trust or other enterprise, and shall apply to actions, suits,
proceedings or claims arising out of or based upon events occurring prior to, on
or after the date of original adoption of this by-law.
ARTICLE VII.
Alteration, Amendment or Repeal of By-Laws.
These by-laws may be altered, amended or repealed by the stockholders
or the Board of Directors.
<PAGE>
Exhibit (4)-22
Commonwealth Edison Company
Form 10-K File No. 1-1839
COMMONWEALTH EDISON COMPANY
and
CITIBANK, N.A.
Trustee Under Indenture Dated as of September 1, 1987
as amended and supplemented
Supplemental Indenture
Dated as of January 1, 1997
Providing for issuance of
7.375% Notes due January 15, 2004
and
7.625% Notes due January 15, 2007
THIS SUPPLEMENTAL INDENTURE, dated as of the 1st day of January, 1997,
between COMMONWEALTH EDISON COMPANY, a corporation duly organized and validly
existing under the laws of the State of Illinois (hereinafter called the
"Company"), and CITIBANK, N.A., a national banking association incorporated and
existing under the laws of the United States of America (hereinafter called the
"Trustee"), Trustee under the Indenture dated as of September 1, 1987, as
amended and supplemented, between the Company and the Trustee (said Indenture,
as heretofore amended and supplemented, hereinafter called the "Original
Indenture").
W I T N E S S E T H:
WHEREAS, the Original Indenture provides for the issuance from time to time
thereunder, in series, of Notes of the Company to provide funds for its
corporate purposes; and
WHEREAS, the Company desires, by this Supplemental Indenture, to create (i)
a series of 7.375% Notes to be issuable under the Original Indenture and to be
known as the Company's 7.375% Notes due January 15, 2004 (hereinafter called the
"2004 Notes"), and the terms and provisions thereof to be as hereinafter set
forth, and (ii) a series of 7.625% Notes to be issuable under the Original
Indenture and to be known as the Company's 7.625% Notes due January 15, 2007
(hereinafter called the "2007 Notes" and, together with the 2004 Notes, the
"Notes"), and the terms and provisions thereof to be as hereinafter set forth;
and
WHEREAS, the general forms of the Notes and the Trustee's certificate of
authentication to be borne by the Notes are to be in the respective forms
established pursuant to or set forth in the Original Indenture, with such
insertions, omissions and variations as the
<PAGE>
Board of Directors of the Company may determine in accordance with the
provisions of this Supplemental Indenture; and
WHEREAS, all things necessary to make the Notes, when executed by the
Company and authenticated and delivered by the Trustee and duly issued by the
Company, the valid obligations of the Company, and to make this Supplemental
Indenture a valid agreement of the Company, in accordance with their and its
terms, have been done.
NOW, THEREFORE, THIS SUPPLEMENTAL INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the Notes by
the Holders thereof, it is mutually covenanted and agreed, for the equal and
proportionate benefit of such Holders, as follows:
Section 1. Defined Terms. All terms used in this Supplemental Indenture
that are defined in the Original Indenture have the meanings assigned to them in
the Original Indenture.
Section 2. Designation and Terms of the 2004 Notes. A series of Notes
created by this Supplemental Indenture shall be known and designated as the
"7.375% Notes due January 15, 2004" of the Company and shall be limited in
aggregate principal amount to $150,000,000.00.
The Stated Maturity of the 2004 Notes shall be January 15, 2004. The 2004
Notes shall bear interest from January 9, 1997, or from the most recent Interest
Payment Date to which interest on the 2004 Notes then Outstanding has been paid
or duly provided for, at the rate of 7.375% per annum. Interest shall be
payable semi-annually on January 15 and July 15 of each year, commencing July
15, 1997, until the principal amount thereof is paid or duly provided for.
Payment of principal of the 2004 Notes and, unless otherwise paid as
hereinafter provided, the interest thereon will be made at the office or agency
of the Company in the Borough of Manhattan, City and State of New York,
provided, however, that payment of interest may be made at the option of the
Company by check or draft mailed to the person entitled thereto at his address
appearing in the Note Register.
The Regular Record Date referred to in Section 1.01 of the Original
Indenture for the payment of the interest on the 2004 Notes payable, and
punctually paid or duly provided for, on any Interest Payment Date shall be the
first day (whether or not a Business Day) of the month in which such Interest
Payment Date occurs.
The 2004 Notes may be issued in denominations of $1,000 and any integral
multiple thereof authorized by the Company, such authorization to be
conclusively evidenced by the execution thereof.
-2-
<PAGE>
Upon the execution of this Supplemental Indenture, the 2004 Notes may be
executed by the Company and delivered to the Trustee for authentication, and the
Trustee shall, upon receipt of the documents specified in Section 2.02 of the
Original Indenture, thereupon authenticate and deliver said 2004 Notes to or
upon a Company Order.
Section 3. Designation and Terms of the 2007 Notes. A series of Notes
created by this Supplemental Indenture shall be known and designated as the
"7.625% Notes due January 15, 2007" of the Company and shall be limited in
aggregate principal amount to $150,000,000.00.
The Stated Maturity of the 2007 Notes shall be January 15, 2007. The 2007
Notes shall bear interest from January 9, 1997, or from the most recent Interest
Payment Date to which interest on the 2007 Notes then Outstanding has been paid
or duly provided for, at the rate of 7.625% per annum. Interest shall be
payable semi-annually on January 15 and July 15 of each year, commencing July
15, 1997, until the principal amount thereof is paid or duly provided for.
Payment of principal of the 2007 Notes and, unless otherwise paid as
hereinafter provided, the interest thereon will be made at the office or agency
of the Company in the Borough of Manhattan, City and State of New York,
provided, however, that payment of interest may be made at the option of the
Company by check or draft mailed to the person entitled thereto at his address
appearing in the Note Register.
The Regular Record Date referred to in Section 1.01 of the Original
Indenture for the payment of the interest on the 2007 Notes payable, and
punctually paid or duly provided for, on any Interest Payment Date shall be the
first day (whether or not a Business Day) of the month in which such Interest
Payment Date occurs.
The 2007 Notes may be issued in denominations of $1,000 and any integral
multiple thereof authorized by the Company, such authorization to be
conclusively evidenced by the execution thereof.
Upon the execution of this Supplemental Indenture, the 2007 Notes may be
executed by the Company and delivered to the Trustee for authentication, and the
Trustee shall, upon receipt of the documents specified in Section 2.02 of the
Original Indenture, thereupon authenticate and deliver said 2007 Notes to or
upon a Company Order.
Section 4. Depository System. It is intended that the Notes be registered
so as to participate in the securities depository system (the "DTC System") with
The Depository Trust Company ("DTC"), as set forth herein. Each of the 2004
Notes and the 2007 Notes shall be initially issued in the form of a fully
registered note or notes in the name of Cede & Co., or any successor thereto, as
nominee for DTC. The Company and the Trustee are authorized to execute and
deliver such letters to or agreements with DTC as shall be necessary to
effectuate the DTC System, including the Letter of Representations from the
Company and the Trustee to DTC relating to the Notes (the "Representation
Letter"). In the event of any conflict between the terms of the Representation
Letter and the Original Indenture, the terms of the Original
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<PAGE>
Indenture shall control. DTC may exercise the rights of a noteholder only in
accordance with the terms hereof applicable to the exercise of such rights.
With respect to Notes registered in the name of DTC or its nominee, the
Company and the Trustee shall have no responsibility or obligation to any
broker-dealer, bank or other financial institution for which DTC holds such
notes from time to time as securities depository (each such broker-dealer, bank
or other financial institution being referred to herein as a "Depository
Participant") or to any person on behalf of whom such a Depository Participant
holds an interest in such notes (each such person being herein referred to as an
"Indirect Participant"). Without limiting the immediately preceding sentence,
the Company and the Trustee shall have no responsibility or obligation with
respect to (a) the accuracy of the records of DTC, its nominee or any Depository
Participant with respect to any ownership interest in the Notes, (b) the
delivery to any Depository Participant or any Indirect Participant or any other
person, other than a registered owner of a Note, of any notice with respect to
the Notes, (c) the payment to any Depository Participant or Indirect Participant
or any other person, other than a registered owner of a Note, of any amount with
respect to principal of, or interest on, the Notes, or (d) any consent given by
DTC as registered owner. So long as certificates for the Notes of a particular
series are not issued as provided in Section 2.11(c) or (d) of the Original
Indenture, the Company and the Trustee may treat DTC or any successor securities
depository as, and deem DTC or any successor securities depository to be, the
absolute owner of such Notes for all purposes whatsoever, including without
limitation (i) the payment of principal and interest on such Notes, (ii) giving
notice of matters with respect to such Notes and (iii) registering transfers
with respect to such Notes. While a Note is in the DTC System, no person other
than DTC or its nominee shall receive a certificate with respect to such Note.
Notwithstanding any other provision of the Original Indenture to the
contrary, so long as any Note is registered in the name of DTC or its nominee,
all payments with respect to principal of and interest on such Note and all
notices with respect to such Note shall be made and given, respectively, in the
manner provided in the Representation Letter.
Section 5. Redemption of Notes. The 2004 Notes shall not be redeemable
prior to their Stated Maturity. The 2007 Notes shall not be redeemable prior to
their Stated Maturity.
T E S T I M O N I U M
This Supplemental Indenture may be executed in any number of counterparts, each
of which so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture
to be duly executed, and their respective corporate seals to be hereunto affixed
and attested, all as of the day and year first above written.
COMMONWEALTH EDISON COMPANY
By:
-----------------------------
Dennis F. O'Brien
Treasurer
ATTEST:
- -----------------------------
David A. Scholz
Secretary
(Corporate Seal)
CITIBANK, N.A.
By:
-----------------------------
Name:
Title:
ATTEST:
- -----------------------------
Name:
Title:
(Corporate Seal)
-5-
<PAGE>
Exhibit (4)-25
Commonwealth Edison Company
Form 10-K File No. 1-1839
[Commonwealth Edison Company Letterhead]
As of September 28, 1997
To each of the Banks party to the
Credit Agreement referred to below
Ladies and Gentlemen:
We refer to the $200 million Credit Agreement dated as of October 1, 1991, as
amended (the "Credit Agreement"), among the undersigned, the Banks (including
you) named therein and the other Lenders from time to time parties thereto, and
Citibank, N.A., as Agent. Capitalized terms used herein without definition shall
have the meanings ascribed thereto in the Credit Agreement.
We are writing to request that you extend the expiration date of your Commitment
under the Credit Agreement from September 29, 1997 until September 28, 1998. If
you agree to this extension, all terms and conditions of the credit Agreement
would continue in effect during the period of such extension, except for the
following amendments: (a) the date "September 28, 1998," would be inserted in
lieu of the date "September 29, 1997," in clause (i) of the definition of
"Termination Date" in section 1.01 of the Credit Agreement, (b) the rate of
".125% per annum" would be inserted in lieu of the rate of ".15% per annum" in
Section 2.04 (a) of the Credit Agreement, (0.125% is the rate per annum
currently in effect), (c) the terms "Banks" and "Lenders" shall mean each of the
banks or other lending institutions agreeing to extend the expiration date of
its Commitment under the Credit Agreement or, if not presently a party to the
Credit Agreement, agreeing to become a party thereto on or after September 29,
1997, and (d) no additional fees would be payable under Section 2.04 (b) of the
Credit Agreement in respect of such extension. Such extension would become
effective as of September 29, 1997.
On and after the effective date of the extension requested herein and the
related amendments referred to above, each reference in the Credit Agreement to
"this Agreement", "hereunder", "hereof", or words of like import referring to
the Credit Agreement, and each reference in the other Loan Documents to "the
Credit Agreement", "thereunder", "thereof", or words of like import referring to
the Credit Agreement, shall mean and be a reference to the Credit Agreement as
amended by this letter.
<PAGE>
Page 2
If you agree to extend the expiration of your Commitment and to the related
amendments provided above, please evidence such agreement by executing
and
returning at least two counterparts of this letter to the Agent at its address
at 399 Park Avenue, 11th Floor, Zone 19, New York, New York 10043, Attention of
Anita J. Brickell, no later than September 12, 1997.
On September 29, 1997, (i) the Commitment of each Bank which fails to return
executed counterparts of this letter as provided above shall automatically
terminate as presently provided in the Credit Agreement, and (ii) all
outstanding Advances of such Bank, together with all accrued interest thereon
and other amounts payable under the Credit Agreement with respect thereto, shall
become due and payable.
Very truly yours,
COMMONWEALTH EDISON COMPANY
By:
----------------------------
John C. Bukovski
Vice President
Agreed as of the date
first above written:
- -------------------------------
(Name of Bank)
By:
----------------------------
Name:
Title:
<PAGE>
Exhibit (10)-6
Unicom Corporation and Commonwealth Edison Company
Form 10-K File Nos. 1-11375 and 1-1839
Unicom Corporation
1998 Long-Term Performance Unit Award
for Executive and Group Level Employees
Payable in 2001 under the
Unicom Corporation Long-Term Incentive Plan, as amended
Unicom Corporation, an Illinois corporation (the "Company"), hereby grants to
each employee described in Section 1 hereof as of January 1, 1998 (the "Grant
Date"), in accordance with the provisions of the Unicom Corporation Long-Term
Incentive Plan, as amended (the "Plan"), a performance unit award (each, an
"Award") expressed as a number (the "Base Unit") of performance units, in the
amount and upon and subject to the restrictions, terms and conditions set forth
below. Capitalized terms not defined herein shall have the meanings specified in
the Plan.
1. Eligibility. Any employee of Unicom or its affiliates (collectively, the
"Employers") who on the applicable Grant Date is one of the following: (i)
an officer of Unicom or any affiliate (including, but not limited to,
Commonwealth Edison Company), (ii) each Executive Level equivalent, and
(iii) each Group Level equivalent shall be eligible for an award; provided,
however, that individuals who become Group Level employees, Executives or
Officers after the Grant Date and during the Performance Period (as
hereinafter defined) (each, a "New Employee") shall also be eligible to
receive an Award hereunder.
The term "Employee" shall mean an Existing Employee, a New Employee or an
Other Employee, as the case may be. For purposes of the above, the
classification of an Employee shall be based upon classifications used by
Unicom or Commonwealth Edison Company, or if a participant's employer
maintains a system of pay classification different from that described
above, upon a classification determined by such employer and Unicom to be
comparable to the above described eligible classifications.
Further, an employee who participates in another long term performance
award program ("Other Award") sponsored by Unicom or one of its affiliates
will not be eligible to participate in this Award. If such employee is no
longer a participant in an Other Award, then he or she may be deemed
eligible to participate in this Award and such Award shall be prorated in a
method consistent with the one described for New Employees in Section 6.1.
In addition, if a participant in this Award becomes a participant in an
Other Award, then he or she will cease to participate in this Award and the
Award shall be prorated in a method consistent with the one described for
Permitted Terminations in Section 6.1.
<PAGE>
2. Base Unit. The Base Unit for each Award shall be a number (rounded to the
nearest one hundredth) equal to (a) the product of (i) the Salary (as
defined below) of the Employee receiving such Award multiplied by (ii) the
applicable percentage set forth below, (b) divided by the closing price of
a share of Common Stock as reported in The Wall Street Journal as New York
Stock Exchange Composite Transactions for December 31, 1997:
<TABLE>
<CAPTION>
Applicable Percentage
---------------------
<S> <C>
Chairman 50%
President 45%
Executive Vice President and CNO/President of Nuclear Generation 45%
Executive Vice President and President of Fossil Generation 40%
Senior Vice President 35%
Officer, other than as listed above 25%
Executive, other than as listed above 20%
Group Level employee, other than as listed above 15%
Other Employee such percentage as shall be established by the
Committee for the particular Other Employee
</TABLE>
For the purposes of calculating the Base Unit, "Salary" shall mean (i) with
respect to an Existing Employee such Existing Employee's monthly scheduled
rate of pay as of the first payday in 1998 multiplied by 12, together with
the income from such Existing Employee's Deferred Compensation Units
(whether such Units were granted by the Company or by ComEd), and (ii) with
respect to a New Employee's Salary shall be such New Employee's monthly
scheduled rate of pay as of the date such New Employee becomes a New
Employee (the "Start Date") multiplied by 12, together with the income from
such New Employee's Deferred Compensation Units (whether such Units were
granted by the Company or by ComEd).
3. Performance Period. The Performance Period shall commence on January 1,
1998 and end on December 31, 2000.
4. Payment Amount. The amount payable in connection with an Award (a "Payment
Amount") shall be a dollar amount determined with reference to the
Employee's Base Value (as defined below) and the Company's percentile rank
(from 1 to 100) (the "Company Rank"), in the Ranking (as hereinafter
defined) for the Performance Period, calculated as follows:
Below Minimum Level. If the Company Rank is lower than the 25th
percentile in the Ranking, then the Payment Amount shall be zero.
Between Minimum Level and Standard Level. If the Company Rank is at
least the 25th percentile in the Ranking but not greater than the 49th
percentile in the Ranking, then the Payment Amount shall equal the
Base Unit multiplied by a fraction the numerator of which is the
Company Rank multiplied by 2 and the denominator of which is 100.
Between Standard Level and Maximum Level. If the Company Rank is at
least the 50th percentile in the Ranking but not greater than the 90th
percentile in the
Page 2 of 5
<PAGE>
Ranking, then the Payment Amount shall equal the Base Unit multiplied
by a fraction the numerator of which is the Company Rank multiplied by
2.5 less 25 and the denominator of which is 100.
Above Maximum Level. If the Company Rank exceeds the 90th percentile
in the Ranking, then the Payment Amount shall equal the Base Unit
multiplied by 2.
For purposes of the foregoing, the term "Ranking" shall mean a ranking
determined based upon the Cumulative Total Shareholder Return (as
hereinafter defined) for such Performance Period on the Company's Common
Stock as compared to the Cumulative Total Shareholder Return for such
Performance Period on the common stock of each corporation comprising the
Dow Jones Utility Index (or any successor index); the term "Cumulative
Total Shareholder Return" for a period shall mean the result obtained by
dividing (i) the sum of (a) the cumulative amount of dividends on the
common stock in question for such period, assuming reinvestment of said
dividends in said common stock, and (b) the difference between the price
per share of said common stock at the end and the beginning of such period,
by (ii) the price per share of said common stock at the beginning of such
period; and the term "Base Value" shall mean the result obtained by
multiplying the Employee's Base Unit by the value of a share of Common
Stock (as determined under Section 5 hereof).
5. Settlement of Awards. The Payment Amount shall become payable upon the
last day of the Performance Period and shall be paid by the Company within
90 days thereafter. The Payment Amount shall be paid 50% in cash and 50% in
shares of Common Stock; provided, however, that, if the Employee elects
under the Unicom Corporation Stock Bonus Deferral Plan to defer more than
50% of the Payment Amount, the amount so deferred shall be paid in shares
of Common Stock; and provided further, that shares that may become payable
to an Employee hereunder shall not be issued if the aggregate number of
shares payable to such Employee does not exceed 25 (and, in such case, cash
shall be paid in an amount equal to the value of the shares that would have
been issued but for this proviso). Fractional shares of Common Stock that
may become payable to an Employee hereunder shall be issued if the shares
issuable to such Employee exceed 25 and are held in non-certificated, book-
entry or electronic form; otherwise, any such fractional shares shall be
paid in cash. For the purposes of determining the number of shares of
Common Stock payable pursuant to this Section, a share of Common Stock
shall be valued at the average of the closing prices of a share of Common
Stock as reported in The Wall Street Journal as New York Stock Exchange
Composite Transactions during the calendar quarter ending on the last day
of the Performance Period (appropriately adjusted for any stock-split,
stock dividend or other similar event).
6. Employment as an "Employee" for Less Than Full Performance Period.
6.1. Termination of Employment. If an Employee's employment with the
Company is terminated prior to the last day of the Performance Period for
any reason other than as provided in the immediately following sentence,
then no amount shall be payable hereunder. If an Employee's employment with
the Company is terminated
Page 3 of 5
<PAGE>
prior to the last day of the Performance Period due to such Employee's (i)
termination as a result of the sale or closing of a generating plant or
ComEd's decision to have a third party provide the services provided by the
functional group that includes such Employee (in any such case, a
"Permitted Termination"), (ii) retirement under the pension plan of any of
the Employers or (iii) death, then such Employee shall be entitled to an
amount equal to the Payment Amount calculated in accordance with Section 4
hereof multiplied by a fraction the numerator of which is the number of
days in the Performance Period that have elapsed between the commencement
of the Performance Period (in the case of an Existing Employee), or the
Start Date (in the case of a New Employee), and the date of such Permitted
Termination, retirement or death (as the case may be) and the denominator
of which is the total number of days in the Performance Period. The Payment
Amount for any New Employee whose employment is not terminated prior to the
last day of the Performance Period shall be calculated in accordance with
Section 4 hereof and shall be prorated by multiplying it by a fraction the
numerator of which is the number of days in the Performance Period that
have elapsed between such New Employee's Start Date and the last day of the
Performance Period and the denominator of which is the number of days in
the Performance Period. Any Payment Amount calculated in accordance with
either of the two immediately preceding sentences shall be paid as provided
in Section 5 hereof within 90 days after the last day of the Performance
Period.
6.2. Promotions; Demotions. If an Employee is promoted or demoted during
the Performance Period to a level that is included within the definition of
Employee, then such person shall be entitled to an Award equal to Payment
Amount calculated in accordance with Section 4 hereof, but based upon the
sum of the products of (i) the Base Unit applicable to each level held by
such Employee during the Performance Period, multiplied by (ii) a fraction
the numerator of which is the number of days during the Performance Period
that such level was held and the denominator of which is the total number
of days in the Performance Period. If an Employee is demoted during the
Performance Period to a level below that included within the definition of
Employee, then such person shall be entitled to an Award equal to the
Payment Amount calculated in accordance with Section 4 hereof multiplied by
a fraction the numerator of which is the number of days in the Performance
Period that such person was at a level included within the definition of
Employee and the denominator of which is the total number of days in the
Performance Period.
6.3. Reduction of Payment Amount in Certain Circumstances. In the event
that an Employee takes a voluntary leave of absence or long-term disability
during all or a portion of the Performance Period, the Payment Amount will
be prorated by multiplying it by a fraction, the numerator of which is the
number of days the Employee worked for an Employer (or Employers) during
the Performance Period and the denominator of which is 1,096.
6.4. Employment. As used in this Section 6, employment by the Company
shall include employment by a corporation which is a "subsidiary
corporation" of the Company, as such term is defined in Section (S)424 (and
any successor section) of
Page 4 of 5
<PAGE>
the Internal Revenue Code of 1986, as amended, or any successor internal
revenue law.
7. Rights as a Stockholder. No Employee shall have any rights as a
stockholder of the Company with respect to any shares of Common Stock that
may be payable hereunder unless and until such shares have been issued to
such Employee or otherwise credited to an account for the benefit of such
Employee.
8. Additional Terms and Conditions of Award.
8.1. Nontransferability of Award. In accordance with Section 13.5 of the
Plan, no Award or other related benefit may, except as otherwise
specifically provided by the Plan or by law, be transferable in any manner
other than by will or the laws of descent and distribution, and any attempt
to transfer any such Award or other benefit shall be void; provided,
however, that the foregoing shall not restrict the ability of any Employee
to transfer any cash or Common Stock received as part of the Payment
Amount. In accordance with Section 13.5 of the Plan, Awards or other
benefits payable under Awards shall not in any manner be subject to the
debts, contracts, liabilities, engagements or torts of any person who shall
be entitled to such Award or benefits, nor shall they be subject to
attachment or legal process for or against such person.
8.2. Withholding Taxes. As a condition precedent to the delivery to the
Employee of cash or Common Stock hereunder and in accordance with Section
13.4 of the Plan, the Company may deduct from any amount (including any
Payment Amount) payable then or thereafter payable by the Company or any of
its subsidiaries to the Employee, or may request the Employee to pay to the
Company in cash, such amount as the Company or any of its subsidiaries may
be required, under all applicable federal, state, local or other laws or
regulations, to withhold and pay over with respect to the Award.
8.3. Compliance with Applicable Law. Each Award is subject to the
condition that if the listing, registration or qualification of the shares
of Common Stock subject to the Award upon any securities exchange or under
any law, or the consent or approval of any governmental body, or the taking
of any other action is necessary or desirable as a condition of, or in
connection with, the vesting or delivery of such shares hereunder, such
shares may not be delivered, in whole or in part, unless such listing,
registration, qualification, consent or approval shall have been effected
or obtained.
8.4. Award Subject to the Plan. This Award is subject to the provisions
of the Plan, and shall be interpreted in accordance therewith.
2001 Plan Document
Approved at 12/10/97 CGCC meeting
Page 5 of 5
<PAGE>
Exhibit (10)-9
Unicom Corporation and Commonwealth Edison Company
Form 10-K File Nos. 1-11375 and 1-1839
UNICOM CORPORATION
General Provisions Regarding Stock Option Awards
Granted Under the Unicom Corporation Long-Term Incentive Plan
Effective July 10, 1997
The purpose of these General Provisions Regarding Stock Option Awards Granted
Under the Unicom Corporation Long-Term Incentive Plan (the "General Provisions")
is to set forth certain provisions which shall be deemed a part of, and to
govern, options to purchase shares of the Common Stock, without par value (the
"Common Stock"), of Unicom Corporation, an Illinois corporation (the "Company"),
granted by the Company on or after July 10, 1997 under the provisions of the
Unicom Corporation Long-Term Incentive Plan (the "Plan"), unless otherwise
provided in the Option Agreement (as hereinafter defined) evidencing any such
option or options.
1. Form of Stock Option Grant. Each such stock option ("Option") shall be
in writing (an "Option Agreement") and shall specify (i) the name of
the recipient of the Option (the "Optionee"), (ii) the number of
shares of Common Stock subject to such Option, and (iii) the terms
applicable to the exercise of such Option, including the exercise
price, any restrictions applicable to such exercise and the expiration
date (the "Expiration Date") for such exercise.
2. Time and Manner of Exercise.
2.1. Exercise of Option.
(a) Except as otherwise provided herein, an Option shall become
exercisable as described under the caption "When
Exercisable" in the Option Agreement.
(b) If an Optionee's employment by the Company terminates by
reason of Retirement, death or Disability, then on the date
of such Retirement, death or Disability, such Optionee's
Option shall, notwithstanding Section 2.1(a) hereof, become
exercisable as to all of the shares of Common Stock
remaining subject to such Option and may (1) in the cases
of Retirement or Disability, be exercised by such Optionee
or his or her Legal Representative or Permitted
Transferees, as the case may be, until the Expiration Date
or (2) in the case of death, be exercised by such
Optionee's Legal Representative or Permitted Transferees,
as the case may be, until 11:59 p.m. (Chicago time) on the
third anniversary of the date of death; provided, however,
that in any case such exercisability is conditioned upon
such Optionee's or his or her Legal Representative's or
Permitted Transferees', as the case may be, continued
"acceptable conduct," as determined by the Committee in its
sole discretion. For purposes of the foregoing, "acceptable
conduct" shall mean, without limitation, refraining from
engaging in activities which (i) are competitive to the
business of the Company or its subsidiaries, (ii) promote
or assist
<PAGE>
competitors of the Company or its subsidiaries, or (iii)
reflect negatively on the Company, its subsidiaries or any
of their directors, officers, employees or agents.
(c) If an Optionee's employment by the Company terminates
either for cause or by voluntary action of such Optionee
(other than Retirement), such Optionee's Option shall
expire on the effective date of such termination of
employment and shall not thereafter be exercisable.
(d) If an Optionee's employment by the Company terminates for
any reason other than Retirement, Disability, death or as
specified in Section 2.1(c) hereof, such Optionee's Option
shall be exercisable only to the extent it is exercisable
on the effective date of such termination of employment and
may thereafter be exercised by such Optionee or his or her
Legal Representative until and including the earlier to
occur of (i) the date which is three months after the
effective date of such termination of employment and (ii)
the Expiration Date.
2.2. Method of Exercise. Subject to the limitations set forth in the
Option Agreement and these General Provisions, an Option may be
exercised by the Optionee:
(a) by giving written notice to the Company specifying the
number of whole shares of Common Stock to be purchased and
accompanied by payment therefor in full (or arrangement
made for such payment to the Company's satisfaction) (1) in
cash, (2) by delivery of previously owned whole shares of
Common Stock (which such Optionee has held for at least six
months prior to the delivery of such shares or which such
Optionee purchased on the open market and for which such
Optionee has good title, free and clear of all liens and
encumbrances) having an aggregate Fair Market Value,
determined as of the date of exercise, equal to the
aggregate purchase price payable pursuant to such Option by
reason of such exercise, (3) in cash by a broker-dealer
acceptable to the Company to whom such Optionee has
submitted an irrevocable notice of exercise or (4) a
combination of (1) and (2), and
(b) by executing such documents as the Company may reasonably
request.
The Company shall have sole discretion to disapprove of an
election pursuant to any of subclauses (2) through (4) of clause
(a) of this Section 2.2. Any fraction of a share of Common Stock
which would be required to pay such purchase price shall be
disregarded and the remaining amount due shall be paid in cash
by the Optionee. No certificate representing a share of Common
Stock shall be delivered until the full purchase price therefor
has been paid.
2.3. Termination of Option.
(a) In no event may an Option be exercised after it terminates
as set forth in this Section 2.3. An Option shall
terminate, to the extent not exercised
-2-
<PAGE>
pursuant to Section 2.2 or earlier terminated pursuant to
Section 2.1, on the Expiration Date stated in the Option
Agreement.
(b) In the event that rights to purchase all or a portion of
the shares of Common Stock subject to an Option expire or
are exercised, cancelled or forfeited, the Optionee shall,
upon the Company's request, promptly return the related
Option Agreement to the Company for full or partial
cancellation, as the case may be. Such cancellation shall
be effective regardless of whether the Optionee returns
said Option Agreement. If the Optionee continues to have
rights to purchase shares of Common Stock under said Option
Agreement, the Company shall, within 10 days of the
Optionee's delivery of said Option Agreement to the
Company, either (i) mark said Option Agreement to indicate
the extent to which said Option has expired or been
exercised, cancelled or forfeited or (ii) issue to the
Optionee a substitute option agreement applicable to such
rights, which agreement shall otherwise be substantially
similar to said Option Agreement in form and substance.
3. Additional Terms and Conditions of Options.
3.1. Nontransferability of Options. Except as may otherwise be
permitted by the Plan or authorized in accordance with the terms
of the Plan, an Option may not be transferred by the Optionee
other than by will or the laws of descent and distribution or
pursuant to beneficiary designation procedures approved by the
Company. Except to the extent permitted by the foregoing
sentence, during the Optionee's lifetime such Optionee's Option
is exercisable only by the Optionee or his or her Legal
Representative. Except to the extent permitted by the foregoing,
an Option may not be sold, transferred, assigned, pledged,
hypothecated, encumbered or otherwise disposed of (whether by
operation of law or otherwise) or be subject to execution,
attachment or similar process. Upon any attempt so to sell,
transfer, assign, pledge, hypothecate, encumber or otherwise
dispose of an Option, such Option and all rights thereunder
shall immediately become null and void.
3.2. Withholding Taxes.
(a) As a condition precedent to the delivery of shares of
Common Stock upon exercise of an Option, the Optionee
shall, upon request by the Company, pay to the Company in
addition to the purchase price of the shares, such amount
of cash as the Company may be required, under all
applicable federal, state, local or other laws or
regulations, to withhold and pay over as income or other
withholding taxes (the "Required Tax Payments") with
respect to such exercise of such Option. If the Optionee
shall fail to advance the Required Tax Payments after
request by the Company, the Company may, in its discretion,
deduct any Required Tax Payments from any amount then or
thereafter payable by the Company to the Optionee.
(b) The Optionee may elect to satisfy his or her obligation to
advance the Required Tax Payments by any of the following
means: (1) a cash
-3-
<PAGE>
payment to the Company pursuant to Section 3.2(a), (2)
delivery to the Company of previously owned whole shares of
Common Stock (which the Optionee has held for at least six
months prior to the delivery of such shares or which the
Optionee purchased on the open market and for which the
Optionee has good title, free and clear of all liens and
encumbrances) having an aggregate Fair Market Value,
determined as of the date the obligation to withhold or pay
taxes first arises in connection with such Optionee's
Option (the "Tax Date"), equal to the Required Tax
Payments, (3) authorizing the Company to withhold whole
shares of Common Stock which would otherwise be delivered
to the Optionee upon exercise of such Option having an
aggregate Fair Market Value, determined as of the Tax Date,
equal to the Required Tax Payments, (4) a cash payment by a
broker-dealer acceptable to the Company to whom the
Optionee has submitted an irrevocable notice of exercise or
(5) any combination of (1), (2) and (3). The Company shall
have sole discretion to disapprove of an election pursuant
to any of clauses (2) through (5). Shares of Common Stock
to be delivered or withheld may not have an aggregate Fair
Market Value in excess of the minimum amount of the
Required Tax Payments. Any fraction of a share of Common
Stock which would be required to satisfy any such
obligation shall be disregarded and the remaining amount
due shall be paid in cash by the Optionee. No certificate
representing a share of Common Stock shall be delivered
until the Required Tax Payments have been satisfied in
full.
(c) Unless the Committee otherwise determines, if an Optionee
is subject to Section 16 of the Exchange Act, the following
provisions shall apply to such Optionee's election to
deliver to the Company whole shares of Common Stock or to
authorize the Company to withhold whole shares of Common
Stock purchasable upon exercise of such Optionee's Option
in payment of all or a portion of such Optionee's tax
liability in connection with such exercise:
(1) Such Optionee may deliver to the Company previously
owned whole shares of Common Stock in accordance with
Section 3.2(b), if such delivery is in connection with the
delivery of shares of Common Stock in payment of the
exercise price of such Optionee's Option.
(2) Such Optionee may authorize the Company to withhold
whole shares of Common Stock purchasable upon exercise of
such Optionee's Option in accordance with Section 3.2(b);
provided that the following provisions shall apply to such
election:
(i) such election may apply only to such Option or
any or all other options held by such Optionee, shall
be filed with the Secretary at least six months prior
to the exercise date of such Option and may not take
effect during the six-month period beginning on the
Grant Date (as specified in the Option Agreement) of
such Option (other than in the event of such
Optionee's death) or
-4-
<PAGE>
(ii) such election (A) shall be subject to approval
by the Committee, (B) may not take effect during the
six-month period beginning on the Grant Date (as
specified in the Option Agreement) of such Option
(other than in the event of such Optionee's death),
(C) must be filed with the Secretary during (or must
be filed with the Secretary in advance of, but take
effect during) the ten business day period beginning
on the third business day following the date of
release of the Company's quarterly or annual summary
statements of sales and earnings and (D) the exercise
of such Option must occur during such ten business day
period.
Unless the Committee otherwise determines, any election pursuant
to clause (i) may be revoked or changed only if such revocation
or change is made at least six months prior to the exercise of
the Option. Any election made pursuant to clause (ii) may be
revoked or changed prior to the exercise of the Option during
the ten business day period.
3.3. Adjustment. The number and class of securities subject to an
Option and the purchase price per security shall be subject to
adjustment as provided in Section 4.2 of the Plan. If any such
adjustment would result in a fractional security being subject
to such Option, the Company shall pay the Optionee, in
connection with the first exercise of such Option, in whole or
in part, occurring after such adjustment, an amount in cash
determined by multiplying (i) the fraction of such security
(rounded to the nearest hundredth) by (ii) the excess, if any,
of (A) the Fair Market Value on the exercise date over (B) the
exercise price per share of such Option. The decision of the
Committee regarding any such adjustment shall be final, binding
and conclusive.
3.4. Compliance with Applicable Law. Each Option is subject to the
condition that if the listing, registration or qualification of
the shares subject to such Option upon any securities exchange
or under any law, or the consent or approval of any governmental
body, or the taking of any other action is necessary or
desirable as a condition of, or in connection with, the purchase
or delivery of shares hereunder, such Option may not be
exercised, in whole or in part, unless such listing,
registration, qualification, consent or approval shall have been
effected or obtained, free of any conditions not acceptable to
the Company. The Company agrees to use reasonable efforts to
effect or obtain any such listing, registration, qualification,
consent or approval.
3.5. Delivery of Certificates. Upon the exercise of an Option, in
whole or in part, the Company shall credit to a book-entry or
other electronic account maintained for the Optionee, or deliver
or cause to be delivered one or more certificates representing,
the number of shares purchased against full payment therefor.
The Company shall pay all original issue or transfer taxes and
all fees and expenses incident to such delivery, except as
otherwise provided in Section 3.2.
-5-
<PAGE>
3.6. Rights as a Stockholder. An Optionee shall not be entitled to
any privileges of ownership with respect to shares of Common
Stock subject to an Option unless and until purchased and
credited to an account maintained for such Optionee or delivered
to such Optionee upon the exercise of such Option, in whole or
in part, and such Optionee becomes a stockholder of record with
respect to such shares; and such Optionee shall not be
considered a stockholder of the Company with respect to any such
shares not so purchased and credited or delivered.
3.7. Company to Reserve Shares. The Company shall at all times prior
to the expiration or termination of an Option reserve and keep
available, either in its treasury or out of its authorized but
unissued shares of Common Stock, the full number of shares
subject to such Option from time to time.
3.8. Agreement Subject to the Plan. Each Option Agreement, and the
Option thereby granted, are subject to the provisions of the
Plan, including, without limitation, Sections 5.1 and 13.2 of
the Plan, and shall be interpreted in accordance therewith.
4. Change in Control.
(a) Notwithstanding any provision in the Plan or any Option
Agreement, in the event of a Change in Control, all outstanding
Options shall immediately become exercisable in full.
(b) "Change in Control" shall mean:
(1) the acquisition by any individual, entity or group (a
"Person"), including any "person" within the meaning of
Section 13(d)(3) or 14(d)(2) of the Exchange Act, of
beneficial ownership within the meaning of Rule 13d-3
promulgated under the Exchange Act, of 20% or more of
either (i) the then outstanding shares of Common Stock (the
"Outstanding Company Common Stock") or (ii) the combined
voting power of the then outstanding securities of the
Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities");
excluding, however, the following: (A) any acquisition
directly from the Company (excluding any acquisition
resulting from the exercise of an exercise, conversion or
exchange privilege unless the security being so exercised,
converted or exchanged was acquired directly from the
Company), (B) any acquisition by the Company, (C) any
acquisition by an employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation
controlled by the Company or (D) any acquisition by any
corporation pursuant to a transaction which complies with
clauses (i), (ii) and (iii) of subsection (3) of this
Section 4(b); provided further, that for purposes of clause
(B), if any Person (other than the Company or any employee
benefit plan (or related trust) sponsored or maintained by
the Company or any corporation controlled by the Company)
shall become the beneficial owner of 20% or more of the
Outstanding Company Common Stock or 20% or more of the
Outstanding Company Voting Securities by reason of an
acquisition by the Company, and such Person shall, after
such
-6-
<PAGE>
acquisition by the Company, become the beneficial owner of
any additional shares of the Outstanding Company Common
Stock or any additional Outstanding Company Voting
Securities (other than pursuant to any dividend
reinvestment plan or arrangement maintained by the Company)
and such beneficial ownership is publicly announced, such
additional beneficial ownership shall constitute a Change
in Control;
(2) individuals who, as of the date hereof, constitute the
Board of Directors (the "Incumbent Board") cease for any
reason to constitute at least a majority of such Board;
provided that any individual who becomes a director of the
Company subsequent to the date hereof whose election, or
nomination for election by the Company's stockholders, was
approved by the vote of at least a majority of the
directors then comprising the Incumbent Board shall be
deemed a member of the Incumbent Board; and provided
further, that any individual who was initially elected as a
director of the Company as a result of an actual or
threatened election contest, as such terms are used in Rule
14a-11 of Regulation 14A promulgated under the Exchange
Act, or any other actual or threatened solicitation of
proxies or consents by or on behalf of any Person other
than the Board shall not be deemed a member of the
Incumbent Board;
(3) approval by the stockholders of the Company of a
reorganization, merger or consolidation or sale or other
disposition of all or substantially all of the assets of
the Company (a "Corporate Transaction"); excluding,
however, a Corporate Transaction pursuant to which (i) all
or substantially all of the individuals or entities who are
the beneficial owners, respectively, of the Outstanding
Company Common Stock and the Outstanding Company Voting
Securities immediately prior to such Corporate Transaction
will beneficially own, directly or indirectly, more than
60% of, respectively, the outstanding shares of common
stock, and the combined voting power of the outstanding
securities of such corporation entitled to vote generally
in the election of directors, as the case may be, of the
corporation resulting from such Corporate Transaction
(including, without limitation, a corporation which as a
result of such transaction owns the Company or all or
substantially all of the Company's assets either directly
or indirectly) in substantially the same proportions
relative to each other as their ownership, immediately
prior to such Corporate Transaction, of the Outstanding
Company Common Stock and the Outstanding Company Voting
Securities, as the case may be, (ii) no Person (other than:
the Company; any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation
controlled by the Company; the corporation resulting from
such Corporate Transaction; and any Person which
beneficially owned, immediately prior to such Corporate
Transaction, directly or indirectly, 20% or more of the
Outstanding Company Common Stock or the Outstanding Company
Voting Securities, as the case may be) will beneficially
own, directly or indirectly, 20% or more of, respectively,
the outstanding shares of common stock of the corporation
resulting from such Corporate
-7-
<PAGE>
Transaction or the combined voting power of the outstanding
securities of such corporation entitled to vote generally
in the election of directors and (iii) individuals who were
members of the Incumbent Board will constitute at least a
majority of the members of the board of directors of the
corporation resulting from such Corporate Transaction; or
(4) approval by the stockholders of the Company of a plan of
complete liquidation or dissolution of the Company.
5. Miscellaneous Provisions.
5.1. Meaning of Certain Terms.
(a) As used herein, employment by the Company shall include
employment by a corporation which is a "subsidiary
corporation" of the Company, as such term is defined in
section 424 of the Code. References in these General
Provisions to sections of the Code shall be deemed to refer
to any successor section of the Code or any successor
internal revenue law.
(b) As used herein, the terms defined elsewhere in these
General Provisions shall have the respective specified
meanings and the following terms shall have the following
respective meanings:
"Committee" shall have the meaning specified in the Plan.
"Disability" shall have the meaning specified in any long-
term disability plan or arrangement maintained by the
Company or, if no such plan or arrangement is then in
effect, as determined by the Committee.
"Exchange Act" means the Securities Exchange Act of 1934,
as amended.
"Fair Market Value" means the closing transaction price of
a share of Common Stock, as reported on the New York Stock
Exchange Composite Transactions on the date of exercise or,
if there shall be no reported transaction for such date, on
the next preceding date for which a transaction was
reported.
"Legal Representative" shall include an executor,
administrator, legal representative, guardian or similar
person.
"Permitted Transferee" shall include any transferee (i)
pursuant to a transfer permitted under Section 13.5 of the
Plan and Section 3.1 of these General Provisions or (ii)
designated pursuant to beneficiary designation procedures
approved by the Company.
"Retirement" shall mean retirement from the employment of
the Company (as defined in Section 5.1(a) hereof) on or
after attaining the minimum age specified for early or
normal retirement in any then effective retirement
-8-
<PAGE>
policy of the Company, after a minimum of ten years
employment with the Company.
5.2. Successors. These General Provisions shall be binding upon and
inure to the benefit of any successor or successors of the
Company and any person or persons who shall, upon the death of
an Optionee, acquire any rights under such Optionee's Option
Agreement in accordance with such Option Agreement, these
General Provisions or the Plan.
5.3. Notices. All notices, requests or other communications provided
for in an Option Agreement shall be made, if to the Company, to
Unicom Corporation, 10 South Dearborn Street - 37th Floor, P.O.
Box A-3007, Chicago, Illinois 60690-3007, Attention: Secretary,
and if to the Optionee under such Option Agreement, to the
address for such Optionee set forth in the records of the
Company. All notices, requests or other communications provided
for in an Option Agreement shall be made in writing either (a)
by personal delivery to the party entitled thereto, (b) by
facsimile transmission with confirmation of receipt, (c) by
mailing in the United States mails to the last known address of
the party entitled thereto or (d) by express courier service.
The notice, request or other communication shall be deemed to be
received upon personal delivery, upon confirmation of receipt of
facsimile transmission or upon receipt by the party entitled
thereto if sent by United States mail or express courier
service; provided, however, that if a notice, request or other
communication is not received during regular business hours, it
shall be deemed to be received on the next succeeding business
day of the Company.
5.4. Governing Law. Each Option Agreement (including these General
Provisions) and all determinations made and actions taken
pursuant thereto, to the extent not governed by the laws of the
United States, shall be governed by the laws of the State of
Illinois and construed in accordance therewith without giving
effect to principles of conflicts of laws.
-9-
<PAGE>
Exhibit (10)-12
Unicom Corporation and Commonwealth Edison Company
Form 10-K File Nos. 1-11375 and 1-1839
Unicom Corporation
1998 Annual Incentive Award for Management Employees
Under the Unicom Corporation Long-Term Incentive Plan
Unicom Corporation, an Illinois corporation (the "Company"), hereby grants
to each Employee (as hereinafter defined), as of January 1, 1998 or, if later,
the date of the commencement of such Employee's employment with an Employer (as
hereinafter defined) (the later of such dates being referred to herein as the
"Grant Date"), in accordance with the provisions of the Unicom Corporation Long-
Term Incentive Plan (as in effect from time to time, the "Plan"), an incentive
award (each, an "Award") in the amount and upon and subject to the restrictions,
terms and conditions set forth below. Capitalized terms not defined herein shall
have the meanings specified in the Plan.
1. Recipients of Awards. Subject in all respects to the provisions
hereof, recipients of Awards hereunder shall consist of:
(a) each employee of Commonwealth Edison Company ("ComEd") (other than (i)
the Chairman, President, and Chief Executive Officer of Unicom and (ii)
temporary employees) who is on the management or executive payroll during
calendar year 1998, provided such employee is placed on such payroll prior to
December 1, 1998; and
(b) each employee of any other Subsidiary/1/ selected from time to time by
the Committee/2/ to receive an Award hereunder.
Each such employee is referred to herein as an "Employee," and the term
"Employer" shall mean the employer of an Employee.
2. Award Amount. (a) The total amount payable to each Employee in
connection with an Award (the "Total Award Amount") shall be determined in
accordance with the following formula:
- ----------------------------
/1/A "Subsidiary" is defined in the Plan as being 51% or more owned.
/2/"Committee" means the Incentive Compensation Sub-committee of the Corporate
Governance and Compensation Committee of the Board of Directors.
Page 1 of 6
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Individual
Total Employee's Payout Performance Performance
Award = Base X Opportunity X Payout X Payout
Amount Salary Percentage Percentage Percentage
</TABLE>
"Employee's Base Salary" shall mean the sum of (i) the product of an
Employee's monthly scheduled rate of pay, determined as of the close of the
final pay period for calendar year 1998 (or such earlier pay period during
1998 in which the Employee's employment terminates), multiplied by 12, plus
(ii) if an Employee is in the "Group" or "Executive" categories of employment,
the income from such Employee's Deferred Compensation Units, if any, (whether
such Units were granted by the Company or by ComEd).
"Payout Opportunity Percentage" shall mean the percentage taken from the
following table based upon the Employee's grade level and level of achievement
of the goal in question:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
Threshold Target Maximum
Grade Level Payout Payout Payout
Percentage Percentage Percentage
-----------------------------------------------------------------------------
<S> <C> <C> <C>
Rated -- Grade 1-9 1.875 7.5 15.0
-----------------------------------------------------------------------------
Rated -- Grade 10-11 2.500 10.0 20.0
-----------------------------------------------------------------------------
Group -- Grade 12 3.750 15.0 30.0
-----------------------------------------------------------------------------
Group -- Grade 13/14 5.000 20.0 40.0
-----------------------------------------------------------------------------
Executive -- Grade 15/16/17 6.250 25.0 50.0
-----------------------------------------------------------------------------
Executive -- Grade 18 7.500 30.0 60.0
-----------------------------------------------------------------------------
Executive -- Grade 19 8.750 35.0 70.0
-----------------------------------------------------------------------------
Executive -- Grade 20 10.000 40.0 80.0
-----------------------------------------------------------------------------
Executive -- Grade 21 11.250 45.0 90.0
-----------------------------------------------------------------------------
Executive -- Grade 22 12.500 50.0 100.0
-----------------------------------------------------------------------------
</TABLE>
Percentage deviation from the Target Payout Percentage shall be used in
determining the applicable Payout Opportunity Percentage for goal achievement
between zero and the Maximum Payout Percentage level. With respect to any
Employee referred to in Section 1(b), the Payout Opportunity Percentage shall
mean such percentage(s) as may be established by the Committee at the time of
such Employee's selection by the Committee to receive an Award hereunder.
Page 2 of 6
<PAGE>
"Performance Payout Percentage" shall mean for each Employee, the sum of
the weighted payout percentages for each assigned goal, as determined by the
Committee, based on the relative achievement of such goals.
"Individual Performance Payout Percentage" shall mean (i) in the case of an
Employee who is rated as performing in the "A" category, 120%, (ii) in the
case of an Employee who is rated as having performed in the "B" category,"
100%, and (iii) in the case of an Employee who is rated as performing in the
"C" category, 0%.
The Total Award Amount as so determined for an Employee shall be subject to
adjustment as provided in Sections 4, 5, and 6 (as so adjusted, the "Adjusted
Total Award Amount").
(b) Subject to Section 8, the Adjusted Total Award Amount for an Employee
shall be paid (i) in the case of a Rated Employee, after the application of
Section 10.2, 100% in cash, and (ii) in the case of all other Employees, 25% in
shares of Common Stock (the amount payable in shares of Common Stock being
referred to herein as the "Stock Payment Amount"), and after application of
Section 10.2, the remainder in cash.
4. Reduction of Total Award Amount in Certain Instances.
4.1 Partial Year of Employment. In the event that:
(a) an Employee (i) is first placed on the management or executive payroll
after January 1, 1998 and prior to December 1, 1998, (ii) is on a voluntary
leave of absence or long-term disability during 1998, (iii) retires under the
pension plan of any of the Employers during 1998, or (iv) dies during 1998, or
(b) an Employee's employment with the Employers is terminated during 1998
as a result of (i) the sale, permanent closure or other disposition of any
generation facility, (ii) the sale or other disposition of any business unit
or functional group (or portion thereof) that includes such Employee, or (iii)
the Employer's decision to have a third party provide the services provided by
the functional group that includes such Employee,
then the Total Award Amount with respect to such Employee will be prorated by
multiplying it by a fraction, the numerator of which is the number of days the
Page 3 of 6
<PAGE>
Employee worked for an Employer (or Employers) during 1998 and the denominator
of which is 365.
4.2 Other Incentive Plans. In the event that during 1998, an Employee
participates in or is or becomes eligible to participate in, any sales or group
incentive plan that precludes receipt of an Award hereunder (such incentive
plans collectively referred to herein as "Other Incentive Plans"), then the
Total Award Amount with respect to such Employee will be prorated (after any
adjustment required by Section 4.1) by multiplying it by a fraction, the
numerator of which is the total number of days during 1998 that the Employee
worked for an Employer (or Employers) and was not a participant in, or eligible
to participate in, the Other Incentive Plans, and the denominator of which is
the total number of days the Employee worked for an Employer (or Employers)
during 1998.
For purposes of this Section 4, the number of days an Employee worked for an
Employer (or Employers) during 1998 shall include, solely in the case of an
Employee who retires under the pension plan of any Employer or who dies, the
total number of days in the calendar month in which such Employee retires or
dies.
5. Part-Time Employees. For an Employee who is a part-time Employee (as
determined in accordance with his or her Employer's personnel practices), the
Total Award Amount will be prorated by multiplying it by a fraction, the
numerator of which is the number of hours the Employee was scheduled to work for
an Employer (or Employers) during 1998 and the denominator of which is 2080.
This Section 5 shall be applied prior to the application of Section 4.1 for any
Employee who is described therein.
6. Transfer of Employee from One Business Unit or Production Facility to
Another Business Unit or Production Facility. In the event that an Employee is
transferred from one business unit to another business unit or production
facility during 1998, the Total Award Amount for such Employee will equal the
sum of the amounts determined on a prorated basis from each business unit.
7. Settlement of Awards. Payment of the Adjusted Total Award Amount, if
any, will be made to an Employee as soon as practicable after the Company's
audited financial results are available for calendar year 1998. The number of
shares of Common Stock payable as part of any Stock Payment Amount to an
Employee shall be computed by dividing the Stock Payment Amount by the value of
one share of Common Stock; provided, however, that shares that may
Page 4 of 6
<PAGE>
become payable to an Employee hereunder shall not be issued if the aggregate
number of shares payable to such Employee does not exceed 25 (and, in such case,
cash shall be paid in an amount equal to the value of the shares that would have
been issued but for this proviso). Fractional shares of Common Stock that may
become payable to an Employee hereunder shall be awarded if the shares awarded
to such Employee exceed 25 and are held in non-certificated, book-entry or
electronic form; otherwise, any such fractional shares shall be paid in cash.
For purposes of this Section, the value of a share of Common Stock shall be the
average of the closing prices of a share of Common Stock as reported in The Wall
Street Journal as New York Stock Exchange Composite Transactions during the last
calendar quarter of 1998 (appropriately adjusted for any stock-split, stock
dividend or other similar event).
8. Termination of Employment. An Employee whose employment with all
Employers terminates on or prior to December 31, 1998 for any reason other than
those described in Section 4.1 shall not be entitled to payment of any Award
hereunder.
9. Rights as a Stockholder. No Employee shall have any rights as a
stockholder of the Company with respect to any shares of Common Stock that may
be payable hereunder unless and until such shares shall have been issued to such
Employee or otherwise credited to an account for the benefit of such Employee.
10. Additional Terms and Conditions of Award.
10.1. Non-Transferability of Award. In accordance with Section 13.5 of the
Plan, except as otherwise specifically provided by the Plan or by law, no Award
may be transferable in any manner other than by will or the laws of descent and
distribution, and any attempt to transfer any such Award shall be void;
provided, however, that the foregoing shall not restrict the ability of any
Employee to transfer any cash or Common Stock received as part of the payment of
the Adjusted Total Award Amount. In accordance with Section 13.5 of the Plan,
Awards shall not in any manner be subject to the debts, contracts, liabilities,
engagements or torts of any person who shall be entitled to such Award nor shall
they be subject to attachment or legal process for or against such person.
10.2. Withholding Taxes. As a condition precedent to the delivery to the
Employee of cash or Common Stock hereunder and in accordance with Section 13.4
of the Plan, the Company may deduct from any amount (including any payment of
the Adjusted Total Award Amount) payable then or thereafter payable by the
Company to the Employee, or may request the Employee to pay to
Page 5 of 6
<PAGE>
the Company in cash, such amount as the Company may be required, under all
applicable federal, state, local or other laws or regulations, to withhold and
pay over with respect to the Award.
10.3. Compliance with Applicable Law. Each Award is subject to the
condition that if the listing, registration or qualification of the shares of
Common Stock subject to the Award upon any securities exchange or under any law,
or the consent or approval of any governmental body, or the taking of any other
action is necessary or desirable as a condition of, or in connection with, the
vesting or delivery of such shares hereunder, such shares may not be delivered,
in whole or in part, unless such listing, registration, qualification, consent
or approval shall have been effected or obtained.
10.4. Award Subject to the Plan. This Award is subject to the provisions of
the Plan, and shall be interpreted in accordance therewith.
Page 6 of 6
<PAGE>
Exhibit (10)-34
Commonwealth Edison Company
Form 10-K File No. 1-1839
AMENDMENT NO. TWO
TO
COMMONWEALTH EDISON
EXCESS BENEFIT SAVINGS PLAN
---------------------------
WHEREAS, Commonwealth Edison Company, an Illinois corporation (the
"Company"), has heretofore adopted and maintains a non-qualified deferred
compensation plan for the benefit of its employees and employees of certain of
its subsidiaries designated the Commonwealth Edison Company Excess Benefit
Savings Plan (the "Plan"); and
WHEREAS, the Company desires to amend the Plan in certain respects.
NOW, THEREFORE, pursuant to the power of amendment contained in
paragraph 8 of the Plan, the Plan is hereby amended, effective September 1,
1997, as follows:
1. Paragraph 3 is amended by adding the following new sentence at the end
thereof:
<PAGE>
Each Account shall be divided into a separate subaccount with respect
to each earnings election made by a Participant pursuant to paragraph
4 below.
2. Section 4 is hereby amended in its entirety to read as follows:
4. Earnings Elections. The Committee shall from time to time
designate two or more investment benchmarks, the rates of return or
loss of which, based upon a Participant's earnings election, shall be
used to determine the rate of return or loss to be credited to the
subaccounts established within the Participant's Account pursuant to
this paragraph 4. A Participant's earnings election shall specify the
percentages of the Participant's Account allocated to the subaccounts
with respect to each investment benchmark selected by the Participant,
in increments of 5% (or multiples thereof). A Participant may change
his or her earnings election as of the first business day of any
calendar month by delivering to the Participant's Employer, at such
time as may be specified by the Committee, a revised earnings
election. A revised earnings election may apply to the then balance of
a Participant's Account, to the future amounts to be credited thereto
on account of the Participant's election under paragraph 2 of this
Plan or both. If for any period of
-2-
<PAGE>
time an earnings election is not in effect pursuant to this paragraph
4, the Participant's Account shall be credited with interest on the
balance thereof as of the end of each calendar month at an annual rate
equal to the imbedded rate of interest then being accrued by the
Company on its long-term debt, as determined from time to time by the
Comptroller of the Company.
3. Paragraph 6 is amended to read as follows:
6. Distribution. Distribution of the balance of a Participant's
Account shall be made at the time and in the manner specified below.
(a) Retirement or Disability. If a Participant's employment
terminates under circumstances entitling the Participant to a
normal or early retirement pension under the Commonwealth Edison
Company Service Annuity System or on account of the Participant's
"disability" as defined therein, and as of the date of such
termination the balance of the Participant's Account is at least
$25,000, the balance of the Participant's Account shall be
distributed to the Participant in installments, payable on or
about the first day of each calendar quarter commencing with the
first calendar quarter beginning after the date on which the
-3-
<PAGE>
Participant's employment terminates and continuing for fifteen
years (the "Installment Period"). The amount of each installment
payment shall be determined:
(i) for the year in which installment payments are to commence,
by dividing the balance of the Participant's Account as of the
last day of the calendar quarter during which the Participant's
employment terminates by the total number of payments to be made
in the Installment Period;
(ii) except as provided in clause (iii) below, for each
subsequent calendar year, by dividing the balance of the
Participant's Account as of September 30 (but subtracting from
such balance the amount of the installment payment to be made on
the next following October 1) by the total number of payments
remaining to be made in the Installment Period (excluding the
installment payment to be made on the next following October 1);
and
(iii) for the final calendar year in which installment payments
are to be made, by dividing the balance of the Participant's
Account as of the payment date by the number of payments
remaining to be made in the Installment Period (including the
installment payment which is then being made);
provided, however, (I) if an installment payment calculated under
subparagraph (i) above is to commence on October 1, such
installments shall continue until the second succeeding January
1, (II) no installment shall exceed the balance of the
Participant's Account immediately before the date of payment and
(III) the final installment shall be equal to the then remaining
balance of
-4-
<PAGE>
the Participant's Account. Notwithstanding the foregoing, a
Participant entitled to distribution under the first sentence of
this paragraph 6(a) may elect to have such installments payable
over ten years or five years, computed in the manner described in
the preceding sentence, or to have the balance of his or her
Account distributed in a single lump sum as of the first day of
the calendar quarter next following the date the Participant's
employment terminates, provided that such election is made at
least one year prior to the date the Participant's employment
terminates and provided further that in the case of a Participant
who retires on or before September 1, 1998 and whose Account has
not been distributed on or before August 1, 1997, such election
may be made within 30 days after such Participant's termination
of employment but shall not become effective until the first day
of the calendar year that begins at least twelve months after
such election.
(b) Distributions in the Event of Death. If a Participant's
employment is terminated on account of the Participant's death,
the balance of the Participant's Account shall be distributed to
the
-5-
<PAGE>
Participant's beneficiary determined pursuant to paragraph 7 in a
single lump sum as soon as is practicable following the end of
the first calendar quarter coinciding with or next following the
Participant's death. If a Participant dies after installment
distributions have begun pursuant to paragraph 6(a), such
installment distributions shall continue to the Participant's
beneficiary determined pursuant to paragraph 7.
(c) Other Distributions. If a Participant's employment shall
terminate for any reason other than those described in paragraph
6(a) and (b), or if as of the date of a Participant's termination
of employment the balance of the Participant's Account is less
than $25,000, the balance of the Participant's Account shall be
distributed to the Participant in a lump sum as soon as is
practicable after the last day of the calendar quarter coinciding
with or next following such termination of employment.
(d) The amount of any distribution pursuant to this paragraph 6
shall be reduced by any amount required by law to be deducted or
withheld, including income tax withholding.
-6-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be executed
on this ____ day of ____________, 1997.
COMMONWEALTH EDISON COMPANY
By
---------------------------
Title
------------------------
ATTEST:
- ------------------------------
Title
------------------------
-7-
<PAGE>
Exhibit (10)-36
Unicom Corporation and Commonwealth Edison Company
Form 10-K File Nos. 1-11375 and 1-1839
AMENDMENT NO. 1 TO UNICOM CORPORATION
STOCK BONUS DEFERRAL PLAN
-------------------------------------
WHEREAS, Unicom Corporation, an Illinois corporation ("Unicom"), has
heretofore adopted and maintains a Deferred Compensation Plan for the benefit of
certain of its employees designated the Unicom Corporation Stock Bonus Deferral
Plan (the "Plan"); and
WHEREAS, Unicom desires to amend the Plan in certain respects.
NOW, THEREFORE, pursuant to the power of amendment contained in Section 8
of the Plan, the Plan hereby is amended, effective as of January 1, 1996, as
follows:
1. The last sentence of Section 3(b) is amended by substituting the words
"on which such individual is notified of his or her eligibility, but not later
than December 31 of the preceding year" for the words "of eligibility" appearing
therein.
2. Section 3(e) is amended by inserting the parenthetical "(together with
any dividend equivalents credited with respect to each such deferral pursuant to
Section 4)" immediately after the words "Sections 3(c) or (d)" appearing
therein.
<PAGE>
3. The second and third sentences of Section 4 are amended to read as
follows:
Each Deferred Stock Account shall be divided into a separate sub-
account (a "class year subaccount") to which shall be credited the
amount deferred to a year pursuant to Section 3(b). Each class year
subaccount shall also be credited with the amount ("dividend
equivalents") equal to the dividends declared from time to time, on
the number of shares of Unicom Stock credited to such subaccount.
4. The penultimate sentence of Section 4 is amended to read as follows:
Unless the participant has elected, in the time and manner set forth
in Section 5 below, to receive current payment in respect of such
dividend equivalents, such dividend equivalents shall be credited to
the appropriate class year subaccount of the participant's Deferred
Stock Account to which such dividend equivalents relate as a number of
additional shares of Unicom Stock determined by dividing the aggregate
amount of such dividend equivalents by the purchase price used under
the Unicom Corporation Dividend Reinvestment and Stock Purchase Plan
related to each such dividend.
-2-
<PAGE>
5. Section 6 is amended by adding the words "of a balance in a class year
subaccount" prior to the word "shall" appearing therein and substituting the
word "Unicom" for the word "Union" appearing therein, and by adding the
following new sentence at the end thereof:
The amount of any such distribution shall be reduced by any amount
required by law to be deducted or withheld, including income tax
withholding.
6. The first sentence of Section 7 is amended by substituting the word
"remain" for the word "remains" appearing therein.
7. The last sentence of Section 7 is amended by inserting the word
"Employee" immediately after the words "Commonwealth Edison" appearing therein.
8. Section 14(a) is amended to read as follows:
Notwithstanding Section 3, the amount deferred for any calendar year
pursuant to Section 3 shall be reduced by an amount which, after the
payment of all federal and state income taxes and the tax imposed by
section 3121 of the Code with respect to the amount deferred, is equal
to the amount of the tax imposed by section 3121 of the Code on the
amount otherwise subject to deferral (determined without regard to
this Section) pursuant to Section 3 for such calendar year.
-3-
<PAGE>
IN WITNESS WHEREOF, Unicom Corporation has caused this instrument to be
executed in its name by its duly authorized officers on this ____ day of
___________________, 1996.
By:
-----------------------------
Title:
--------------------------
ATTEST:
- ---------------------------
Title:
---------------------
-4-
<PAGE>
Exhibit (10)-37
Unicom Corporation and Commonwealth Edison Company
Form 10-K File Nos. 1-11375 and 1-1839
UNICOM CORPORATION
STOCK AWARD AGREEMENT
Unicom Corporation, an Illinois corporation (the "Company"), hereby grants
_______________, (the "Holder") as of _________________, (the "Grant Date"),
pursuant to the provisions of the Unicom Corporation Long-Term Incentive Plan
(the "Plan"), a stock award (the "Award") of ______________ (___,000) shares of
the Company's Common Stock, without par value ("Common Stock"), upon and subject
to the restrictions, terms and conditions set forth below. Capitalized terms
not defined herein shall have the meanings specified in the Plan.
1. Award Subject to Acceptance of Agreement.
----------------------------------------
The Award shall be subject to all the terms of this Agreement and the Plan.
2. Rights as a Stockholder; Dividend Equivalents.
---------------------------------------------
The Holder shall not be entitled to any privileges of ownership with respect to
the shares of Common Stock subject to the Award unless and until, and only to
the extent, such shares become vested pursuant to Section 3 hereof and the
Holder becomes a stockholder of record with respect to such shares. The Company
shall pay to the Holder a cash payment equal to the amount of any dividends he
would have received had the shares of Common Stock covered by this Award been
issued to him on the date hereof and such payment shall be made when and as
dividends are paid on outstanding shares of Common Stock until such shares
either vest or are forfeited, as provided in Section 3.
3. Restriction Period and Vesting.
------------------------------
(a) The Award shall vest with respect to ___(fill in #)______ shares of
Common Stock on __(each)______ the ___(specify anniversary
cycle(s))_____ and ____(specify anniversary cycle(s))____
anniversaries hereof, or earlier pursuant to Sections 3(b) and 3(c)
hereof (the "Restriction Period").
(b) If (i) the Holder's employment by the Company or its successors
terminates by reason of Disability or death or (ii) a Change in
Control shall have occurred, the Award shall become fully vested as of
the date of such Disability or death, or the effective date of such
Change in Control, as the case may be.
(c) If (i) the Holder's employment is terminated by the Company or its
successors for any reason other than a reason described in Section
3(d), or (ii) the Holder resigns because the Company or its successors
(A) fails to pay to the Holder his salary when due, (B) reduces
Holder's pay (salary and/or incentives) and benefits, or (C)
materially changes the duties of Holder's position with the Company,
the Award shall become fully vested as of the effective date of such
termination of employment or resignation, as applicable.
(d) If the Holder's employment by the Company terminates on account of
fraud or willful misconduct, or other than as described in Sections
3(b) or 3(c), the portion of the Award that is not vested as of the
effective date of such termination of employment shall be forfeited by
the Holder, and such portion shall be canceled by the Company.
4. Termination of Award.
--------------------
<PAGE>
Restricted Stock Agreement--_______________
Page 2 of 6
In the event that the Holder shall forfeit all or a portion of the shares of
Common Stock subject to the Award, this Award shall terminate. The Holder
shall, upon the Company's request, promptly return this Agreement to the Company
for cancellation. Such cancellation shall be effective regardless of whether
the Holder returns this Agreement.
5. Additional Terms and Conditions of Award.
----------------------------------------
5.1. Nontransferability of Award.
---------------------------
During the Restriction Period, this Award may not be sold, transferred,
assigned, pledged, hypothecated, encumbered or otherwise disposed of
(whether by operation of law or otherwise) or be subject to execution,
attachment or similar process, other than by will or the laws of descent
and distribution. Upon any attempt to so sell, transfer, assign, pledge,
hypothecate or encumber, or otherwise dispose of this Award or any shares
subject hereto that have not been issued pursuant to Section 5.5 shall
immediately become null and void.
5.2. Withholding Taxes.
-----------------
(a) As a condition precedent to the delivery to the Holder of any
shares of Common Stock subject to the Award, the Holder shall, upon
request by the Company, pay to the Company (or shall cause a broker-
dealer on behalf of the Holder to pay to the Company) such amount of
cash as the Company may be required, under all applicable federal,
state, local or other laws or regulations, to withhold and pay over as
income or other withholding taxes (the "Required Tax Payments") with
respect to the Award. If the Holder shall fail to advance the Required
Tax Payments after request by the Company, the Company may, in its
discretion, deduct any Required Tax Payments from any amount then or
thereafter payable by the Company to the Holder.
(b) The Holder may elect to satisfy his or her obligation to advance
the Required Tax Payments by any of the following means: (1) a cash
payment to the Company pursuant to Section 5.2(a), (2) delivery to the
Company of previously owned whole shares of Common Stock (which the
Holder has held for at least six months prior to the delivery of such
shares or which the Holder purchased on the open market and for which
the Holder has good title, free and clear of all liens and
encumbrances) having a Fair Market Value, determined as of the date
the obligation to withhold or pay taxes first arises in connection
with the Award (the "Tax Date"), equal to the Required Tax Payments,
(3) authorizing the Company to withhold from the shares of Common
Stock otherwise to be delivered to the Holder pursuant to the Award, a
number of whole shares of Common Stock having a Fair Market Value,
determined as of the Tax Date, equal to the Required Tax Payments, (4)
a cash payment by a broker-dealer acceptable to the Company through
whom the Holder has sold the shares with respect to which the Required
Tax Payments have arisen or (5) any combination of (1), (2) and (3).
The Committee shall have sole discretion to disapprove of an election
pursuant to any of clauses (2)-(5). Shares of Common Stock to be
delivered or withheld may have a Fair Market Value in excess of the
minimum amount of the Required Tax Payments, but not in excess of the
amount determined by applying the Holder's maximum marginal tax rate.
Any fraction of a share of Common Stock which would be required to
satisfy such an obligation shall be disregarded and the remaining
amount due shall be paid in cash by the Holder. No certificate
representing a share of Common Stock shall be delivered until the
Required Tax Payments have been satisfied in full.
5.3. Adjustment.
----------
In the event of any stock split, stock dividend, recapitalization,
reorganization, merger, consolidation, combination, exchange of shares,
liquidation, spin-off or other similar change in
<PAGE>
Restricted Stock Agreement--_______________
Page 3 of 6
capitalization or event, or any distribution to holders of Common Stock
other than a regular cash dividend, the number and class of securities
subject to the Award shall be appropriately adjusted by the Committee. If
any adjustment would result in a fractional security being subject to the
Award, the Company shall pay the Holder, in connection with the vesting, if
any, of such fractional security, an amount in cash determined by
multiplying (i) such fraction (rounded to the nearest hundredth) by (ii)
the Fair Market Value on the vesting date. The decision of the Committee
regarding any such adjustment shall be final, binding and conclusive.
5.4. Compliance with Applicable Law.
------------------------------
The Award is subject to the condition that if the listing, registration or
qualification of the shares subject to the Award upon any securities
exchange or under any law, or the consent or approval of any governmental
body, or the taking of any other action is necessary or desirable as a
condition of, or in connection with, the vesting or delivery of shares
hereunder, the shares of Common Stock subject to the Award shall not vest
or be delivered, in whole or in part, unless such listing, registration,
qualification, consent or approval shall have been effected or obtained,
free of any conditions not acceptable to the Company. The Company agrees to
use reasonable efforts to effect or obtain any such listing, registration,
qualification, consent or approval.
5.5. Delivery of Certificates.
------------------------
Subject to Section 5.2, as soon as practicable after the vesting of the
Award, in whole or in part, the Company shall deliver or cause to be
delivered one or more certificates issued in the Holder's name representing
the number of vested shares. The Company shall pay all original issue or
transfer taxes and all fees and expenses incident to such delivery, except
as otherwise provided in Section 5.2.
5.6. Award Confers No Rights to Continued Employment.
-----------------------------------------------
In no event shall the granting of the Award or its acceptance by the Holder
give or be deemed to give the Holder any right to continued employment by
the Company or any affiliate of the Company.
5.7. Decisions of Committee.
----------------------
The Committee shall have the right to resolve all questions which may arise
in connection with the Award. Any interpretation, determination or other
action made or taken by the Committee regarding the Plan or this Agreement
shall be final, binding and conclusive.
5.8. Company to Reserve Shares.
-------------------------
The Company shall at all times prior to the cancellation of the Award
reserve and keep available, either in its treasury or out of its authorized
but unissued shares of Common Stock, the full number of unvested shares
subject to the Award from time to time.
5.9. Agreement Subject to the Plan.
-----------------------------
This Agreement is subject to the provisions of the Plan and shall be
interpreted in accordance therewith. The Holder hereby acknowledges receipt
of a copy of the Plan.
<PAGE>
Restricted Stock Agreement--_______________
Page 4 of 6
6. Miscellaneous Provisions.
------------------------
6.1. Meaning of Certain Terms.
------------------------
As used herein, the following terms shall have the respective meanings set
forth below:
"Change in Control" shall mean:
(1) the acquisition by any individual, entity or group (a "Person"),
including any "person" within the meaning of Section 13(d)(3) or
14(d)(2) of the Exchange Act, of beneficial ownership within the
meaning of Rule 13d-3 promulgated under the Exchange Act, of 20% or
more of either (i) the then outstanding shares of Common Stock (the
"Outstanding Company Common Stock") or (ii) the combined voting power
of the then outstanding securities of the Company entitled to vote
generally in the election of directors (the "Outstanding Company
Voting Securities"); excluding, however, the following: (A) any
acquisition directly from the Company (excluding any acquisition
resulting from the exercise of an exercise, conversion or exchange
privilege unless the security being so exercised, converted or
exchanged was acquired directly from the Company), (B) any acquisition
by the Company, (C) any acquisition by an employee benefit plan (or
related trust) sponsored or maintained by the Company or any
corporation controlled by the Company or (D) any acquisition by any
corporation pursuant to a transaction which complies with clauses (i),
(ii) and (iii) of subsection (3) of this Section 4(b); provided
further, that for purposes of clause (B), if any Person (other than
the Company or any employee benefit plan (or related trust) sponsored
or maintained by the Company or any corporation controlled by the
Company) shall become the beneficial owner of 20% or more of the
Outstanding Company Common Stock or 20% or more of the Outstanding
Company Voting Securities by reason of an acquisition by the Company,
and such Person shall, after such acquisition by the Company, become
the beneficial owner of any additional shares of the Outstanding
Company Common Stock or any additional Outstanding Company Voting
Securities (other than pursuant to any dividend reinvestment plan or
arrangement maintained by the Company) and such beneficial ownership
is publicly announced, such additional beneficial ownership shall
constitute a Change in Control;
(2) individuals who, as of the date hereof, constitute the Board of
Directors (the "Incumbent Board") cease for any reason to constitute
at least a majority of such Board; provided that any individual who
becomes a director of the Company subsequent to the date hereof whose
election, or nomination for election by the Company's stockholders,
was approved by the vote of at least a majority of the directors then
comprising the Incumbent Board shall be deemed a member of the
Incumbent Board; and provided further, that any individual who was
initially elected as a director of the Company as a result of an
actual or threatened election contest, as such terms are used in Rule
14a-11 of Regulation 14A promulgated under the Exchange Act, or any
other actual or threatened solicitation of proxies or consents by or
on behalf of any Person other than the Board shall not be deemed a
member of the Incumbent Board;
(3) approval by the stockholders of the Company of a reorganization,
merger or consolidation or sale or other disposition of all or
substantially all of the assets of the Company (a "Corporate
Transaction"); excluding, however, a Corporate Transaction pursuant to
which (i) all or substantially all of the individuals or entities who
are the beneficial owners, respectively, of the Outstanding Company
Common Stock and the Outstanding Company Voting Securities immediately
prior to such Corporate Transaction will beneficially own, directly or
indirectly, more than 60% of, respectively, the outstanding shares of
common stock, and the combined voting power of the outstanding
<PAGE>
Restricted Stock Agreement--_______________
Page 5 of 6
securities of such corporation entitled to vote generally in the
election of directors, as the case may be, of the corporation
resulting from such Corporate Transaction (including, without
limitation, a corporation which as a result of such transaction owns
the Company or all or substantially all of the Company's assets either
directly or indirectly) in substantially the same proportions relative
to each other as their ownership, immediately prior to such Corporate
Transaction, of the Outstanding Company Common Stock and the
Outstanding Company Voting Securities, as the case may be, (ii) no
Person (other than: the Company; any employee benefit plan (or related
trust) sponsored or maintained by the Company or any corporation
controlled by the Company; the corporation resulting from such
Corporate Transaction; and any Person which beneficially owned,
immediately prior to such Corporate Transaction, directly or
indirectly, 20% or more of the Outstanding Company Common Stock or the
Outstanding Company Voting Securities, as the case may be) will
beneficially own, directly or indirectly, 20% or more of,
respectively, the outstanding shares of common stock of the
corporation resulting from such Corporate Transaction or the combined
voting power of the outstanding securities of such corporation
entitled to vote generally in the election of directors and (iii)
individuals who were members of the Incumbent Board will constitute at
least a majority of the members of the board of directors of the
corporation resulting from such Corporate Transaction; or
(4) approval by the stockholders of the Company of a plan of complete
liquidation or dissolution of the Company.
"Disability" shall have the meaning specified in any long-term disability
plan or arrangement maintained by the Company or an affiliate under which
the Holder is covered or, if no such plan or arrangement is then in effect,
as determined by the Committee.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means the closing transaction price of a share of
Common Stock, as reported on the New York Stock Exchange Composite
Transactions on the date in question or, if there shall be no reported
transaction for such date, on the next preceding date for which a
transaction was reported.
"vest" shall mean no longer subject to forfeiture.
As used herein, employment by the Company shall include employment by a
corporation which is a "subsidiary corporation" of the Company, as such
term is defined in section 424 of the Code. References in this Agreement to
sections of the Code shall be deemed to refer to any successor section of
the Code or any successor internal revenue law.
6.2. Successors.
----------
This Agreement shall be binding upon and inure to the benefit of any
successor or successors of the Company and any person or persons who shall,
upon the death of the Holder, acquire any rights hereunder in accordance
with this Agreement or the Plan.
6.3. Notices.
-------
All notices, requests or other communications provided for in this
Agreement shall be made, if to the Company, to Unicom Corporation, 10 South
Dearborn Street -- 37th Floor, Chicago, Illinois 60603, Attention:
Secretary, and if to the Holder, ____________________________________. All
notices, requests or other communications provided for in this Agreement
shall be made in writing (a) by personal delivery to the party entitled
thereto, (b) by facsimile transmission with confirmation of receipt, (c) by
<PAGE>
Restricted Stock Agreement--_______________
Page 6 of 6
mailing in the United States mails to the last known address of the party
entitled thereto or (d) by express courier service. The notice, request or
other communication shall be deemed to be received upon personal delivery,
upon confirmation of receipt of facsimile transmission, or upon receipt by
the party entitled thereto if by United States mail or express courier
service; provided, however, that if a notice, request or other
communication is not received during regular business hours, it shall be
deemed to be received on the next succeeding business day of the Company.
6.4. Governing Law.
-------------
This Agreement, the Award and all determinations made and actions taken
pursuant hereto and thereto, to the extent not otherwise governed by the
laws of the United States, shall be governed by the laws of the State of
Illinois and construed in accordance therewith without giving effect to
conflicts of laws principles.
6.5. Counterparts.
------------
This Agreement may be executed in two or more counterparts each of which
shall be deemed an original and both of which together shall constitute one
and the same instrument.
UNICOM CORPORATION
By:
-------------------------
David A. Scholz
Secretary
<PAGE>
Exhibit (12)
Commonwealth Edison Company
Form 10-K File No. 1-1839
Commonwealth Edison Company and Subsidiary Companies
----------------------------------------------------
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
No. 1993 1994 1995 1996 1997 (1)
- ---- ---- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C>
1 Net income (loss) before extraordinary items and
2 cumulative effect of changes in accounting
3 principles $102,702 $ 423,946 $ 737,176 $ 743,368 $(160,138)
-------- ---------- ---------- ---------- ---------
4 Net provisions for income taxes and investment
5 tax credits deferred charged to-
6 Operations $ 66,406 $ 300,764 $ 503,519 $ 462,400 $ 307,276
7 Other income (30,754) (23,062) (7,685) (7,385) (405,819)
-------- ---------- ---------- ---------- ---------
8 $ 35,652 $ 277,702 $ 495,834 $ 455,015 $ (98,543)
-------- ---------- ---------- ---------- ---------
9 Fixed Charges-
10 Interest on debt $651,639 $ 621,909 $ 589,217 $ 523,310 $ 487,749
11 Estimated interest component of nuclear fuel
12 and other lease payments, rentals and other
13 interest 49,021 64,885 73,003 70,666 70,468
14 Amortization of debt discount, premium and
15 expense 20,966 22,804 22,738 21,151 21,951
16 Preferred securities dividend requirements of
17 subsidiary trusts holding solely subordinated
18 debt securities - - 4,428 16,960 28,860
-------- ---------- ---------- ---------- ---------
19 $721,626 $ 709,598 $ 689,386 $ 632,087 $ 609,028
-------- ---------- ---------- ---------- ---------
20 Preferred and preference stock dividend
21 requirements -
22 Provisions for stock dividends $ 66,052 $ 64,927 $ 69,961 $ 64,424 $ 60,486
23 Taxes on income required to meet provisions
24 for stock dividends 43,596 42,854 45,945 42,150 39,623
-------- ---------- ---------- ---------- ---------
25 $109,648 $ 107,781 $ 115,906 $ 106,574 $ 100,109
-------- ---------- ---------- ---------- ---------
26 Fixed charges and preferred and preference
27 stock dividend requirements $831,274 $ 817,379 $ 805,292 $ 738,661 $ 709,137
-------- ---------- ---------- ---------- ---------
28 Earned for fixed charges and preferred and
29 preference stock dividend requirements $859,980 $1,411,246 $1,922,396 $1,830,470 $ 350,347
-------- ---------- ---------- ---------- ---------
30 Ratios of earnings to fixed charges (line 29
31 divided by line 19) 1.19 1.99 2.79 2.90 0.58
======== ========== ========== ========== =========
32 Ratios of earnings to fixed charges and
33 preferred and preference stock dividend
34 requirements (line 29 divided by line 27) 1.03 1.73 2.39 2.48 0.49
======== ========== ========== ========== =========
</TABLE>
(1) Earnings for 1997 were inadequate to cover fixed charges and fixed charges
and preferred and preference stock dividend requirements by approximately $259
million and $359 million, respectively. The deficiency is principally
attributable to the earnings impact of the closure of Zion Station.
<PAGE>
Exhibit (18)
Unicom Corporation and Commonwealth Edison Company
Form 10-K File Nos. 1-11375 and 1-1839
[Arthur Andersen Letterhead]
January 30, 1998
Commonwealth Edison Company
P.O. Box 767
Chicago, IL 60690-0767
Re: Form 10-K Report for the Year Ended December 31, 1997
Ladies and Gentlemen:
This letter is written to meet the requirements of Regulation S-K calling for a
letter from a registrant's independent public accountants whenever there has
been a change in accounting principle or practice.
During the fourth quarter of 1997, the Company changed its method of accounting
from recording revenue when billed to its customers based on a monthly meter
reading schedule to estimating and accruing the amount of revenues associated
with service provided after billing through the end of the accounting period.
According to management of the Company, this change was made to better match
monthly revenues with service provided to customers.
We are of the opinion that the Company's change in method of accounting is to an
acceptable alternative method of accounting, which, based upon the reason stated
for the change and our discussions with you, it is also preferable under the
circumstances in this particular case. In arriving at this opinion, we have
relied on the business judgment and business planning of your management.
Very truly yours,
Arthur Andersen LLP
<PAGE>
Exhibit (21)-1
Unicom Corporation
Form 10-K File No. 1-11375
Unicom Corporation
Subsidiaries of the Company
---------------------------
<TABLE>
<CAPTION>
State or
Jurisdiction
in Which
Incorporated
Name of Organized
- ---------------------------------------------- ------------
<S> <C>
Commonwealth Edison Company Illinois
Commonwealth Edison Company of Indiana, Inc. Indiana
ComEd Financing I (Subsidiary Trust) Delaware
ComEd Financing II (Subsidiary Trust) Delaware
Commonwealth Research Corporation Illinois
Concomber Ltd. Bermuda
Cotter Corporation New Mexico
Edison Development Company Delaware
Edison Development Canada Inc. Canada
Unicom Enterprises Inc. Illinois
Unicom Energy Services Inc. Illinois
Unicom Power Marketing Inc. Delaware
Unicom Technology Development Inc. Illinois
UT Holdings Inc. Delaware
Northwind Development Inc. Delaware
Unicom Thermal Technologies Inc. Illinois
Unicom Thermal Technologies Boston Inc. Delaware
Unicom Thermal Technologies Houston Inc. Delaware
Unicom Thermal Technologies North America Inc. Delaware
Northwind Thermal Technologies Canada Inc. New Brunswick
Unicom Thermal Technologies Inc. New Brunswick
UTT National Power Inc. Illinois
UTT Nevada Inc. Nevada
Northwind Aladdin Inc. Nevada
Unicom Resources Inc. Illinois
</TABLE>
<PAGE>
Exhibit (21)-2
Commonwealth Edison Company
Form 10-K File No. 1-1839
Commonwealth Edison Company
Subsidiaries of the Company
---------------------------
<TABLE>
<CAPTION>
State or
Jurisdiction
in Which
Incorporated
Name or Organized
- ---------------------------------------------- ------------
<S> <C>
Commonwealth Edison Company of Indiana, Inc. Indiana
ComEd Financing I (Subsidiary Trust) Delaware
ComEd Financing II (Subsidiary Trust) Delaware
Commonwealth Research Corporation Illinois
Concomber Ltd. Bermuda
Cotter Corporation New Mexico
Edison Development Company Delaware
Edison Development Canada Inc. Canada
</TABLE>
<PAGE>
Exhibit (23)-1
Unicom Corporation
Form 10-K File No. 1-11375
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the incorporation
by reference in this Form 10-K of our report dated January 30, 1998 on Unicom
Corporation and subsidiary companies' consolidated financial statements as of
and for the year ended December 31, 1997 (Report), included in Unicom
Corporation's Current Report on Form 8-K dated January 30, 1998, to the
inclusion in this Form 10-K of our report dated January 30, 1998, on the
supplemental schedule of Unicom Corporation as of and for the year ended
December 31, 1997, and to the incorporation of such reports 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), Form S-8
Registration Statement File No. 33-56991 (relating to Unicom Corporation's Long-
Term Incentive Plan), Form S-4 Registration Statement File No. 333-01003
(relating to the common stock of Unicom Corporation), Form S-8 Registration
Statement File No. 333-04749 (relating to Unicom Corporation's 1996 Directors'
Fee Plan), Form S-8 Registration Statement File Nos. 333-10613 and 333-26779
(relating to Commonwealth Edison Company's Employee Savings and Investment Plan)
and Form S-8 Registration Statement File No. 333-39677 (relating to the Unicom
Corporation Management Deferred Compensation Plan). We also consent to the
application of our Report, incorporated by reference in this Form 10-K, to
Commonwealth Edison Company and subsidiary companies' 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 years ended December 31,
1997, 1996 and 1995 appearing in Exhibit 99 of Unicom Corporation's Current
Report on Form 8-K dated January 30, 1998.
ARTHUR ANDERSEN LLP
Chicago, Illinois
March 27, 1998
<PAGE>
Exhibit (23)-2
Commonwealth Edison Company
Form 10-K File No. 1-1839
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the incorporation
by reference in this Form 10-K of our report dated January 30, 1998, on
Commonwealth Edison Company and subsidiary companies' consolidated financial
statements as of and for the year ended December 31, 1997 (Report), included in
Commonwealth Edison Company's Current Report on Form 8-K dated January 30, 1998,
to the inclusion in this Form 10-K of our report dated January 30, 1998, on the
supplemental schedule of Commonwealth Edison Company as of and for the year
ended December 31, 1997, and to the incorporation of such reports 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); (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); (4)
prospectus dated June 13, 1997 constituting part of Form S-4 Registration
Statement File No. 333-28369 (relating to Company-Obligated Mandatorily
Redeemable Preferred Securities of ComEd Financing II); and (5) Form S-8
Registration Statement File No. 333-33847 (relating to the Commonwealth Edison
Company Excess Benefit Savings Plan). We also consent to the application of our
Report, incorporated by reference in this Form 10-K, 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 years ended December 31,
1997, 1996 and 1995 appearing in Exhibit 99 of Commonwealth Edison Company's
Current Report on Form 8-K dated January 30, 1998.
ARTHUR ANDERSEN LLP
Chicago, Illinois
March 27, 1998
<PAGE>
Exhibit (24)-1
Unicom Corporation
Form 10-K File No. 1-11375
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director of Unicom Corporation, an Illinois
corporation, does hereby constitute and appoint JOHN W. ROWE and DAVID A.
SCHOLZ, and each of them, his true and lawful attorneys and agents, each with
full power and authority (acting alone and without the others) to execute in the
name and on behalf of the undersigned as such Director, the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1997, to be filed
with the Securities and Exchange Commission pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934, as amended; hereby granting to such
attorneys and agents, and each of them, full power of substitution and
revocation in the premises; and hereby ratifying and confirming all that such
attorneys and agents, or any of them, may do or cause to be done by virtue of
these presents.
IN WITNESS WHEREOF, I have hereunto set my hand this 11th day of March,
1998.
Edward A. Brennan
-------------------------
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
I, Mary L. Kwilos, a Notary Public in and for said County, in the State
aforesaid, DO HEREBY CERTIFY that EDWARD A. BRENNAN, personally known to me to
be the same person whose name is subscribed to the foregoing instrument,
appeared before me this day in person, and acknowledged that he signed and
delivered said instrument as his free and voluntary act, for the uses and
purposes therein set forth.
GIVEN under my hand and notarial seal this 11th day of March, 1998.
Mary L. Kwilos
-------------------------
(Notary Public Seal) Notary Public
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director of Unicom Corporation, an Illinois
corporation, does hereby constitute and appoint JOHN W. ROWE and DAVID A.
SCHOLZ, and each of them, his true and lawful attorneys and agents, each with
full power and authority (acting alone and without the others) to execute in the
name and on behalf of the undersigned as such Director, the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1997, to be filed
with the Securities and Exchange Commission pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934, as amended; hereby granting to such
attorneys and agents, and each of them, full power of substitution and
revocation in the premises; and hereby ratifying and confirming all that such
attorneys and agents, or any of them, may do or cause to be done by virtue of
these presents.
IN WITNESS WHEREOF, I have hereunto set my hand this 11th day of March,
1998.
James W. Compton
-------------------------
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
I, Mary L. Kwilos, a Notary Public in and for said County, in the State
aforesaid, DO HEREBY CERTIFY that JAMES W. COMPTON, personally known to me to be
the same person whose name is subscribed to the foregoing instrument, appeared
before me this day in person, and acknowledged that he signed and delivered said
instrument as his free and voluntary act, for the uses and purposes therein set
forth.
GIVEN under my hand and notarial seal this 11th day of March, 1998.
Mary L. Kwilos
-------------------------
(Notary Public Seal) Notary Public
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director of Unicom Corporation, an Illinois
corporation, does hereby constitute and appoint JOHN W. ROWE and DAVID A.
SCHOLZ, and each of them, his true and lawful attorneys and agents, each with
full power and authority (acting alone and without the others) to execute in the
name and on behalf of the undersigned as such Director, the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1997, to be filed
with the Securities and Exchange Commission pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934, as amended; hereby granting to such
attorneys and agents, and each of them, full power of substitution and
revocation in the premises; and hereby ratifying and confirming all that such
attorneys and agents, or any of them, may do or cause to be done by virtue of
these presents.
IN WITNESS WHEREOF, I have hereunto set my hand this 11th day of March,
1998.
Bruce DeMars
-------------------------
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
I, Mary L. Kwilos, a Notary Public in and for said County, in the State
aforesaid, DO HEREBY CERTIFY that BRUCE DEMARS, personally known to me to be the
same person whose name is subscribed to the foregoing instrument, appeared
before me this day in person, and acknowledged that he signed and delivered said
instrument as his free and voluntary act, for the uses and purposes therein set
forth.
GIVEN under my hand and notarial seal this 11th day of March, 1998.
Mary L. Kwilos
-------------------------
(Notary Public Seal) Notary Public
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director of Unicom Corporation, an Illinois
corporation, does hereby constitute and appoint JOHN W. ROWE and DAVID A.
SCHOLZ, and each of them, her true and lawful attorneys and agents, each with
full power and authority (acting alone and without the others) to execute in the
name and on behalf of the undersigned as such Director, the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1997, to be filed
with the Securities and Exchange Commission pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934, as amended; hereby granting to such
attorneys and agents, and each of them, full power of substitution and
revocation in the premises; and hereby ratifying and confirming all that such
attorneys and agents, or any of them, may do or cause to be done by virtue of
these presents.
IN WITNESS WHEREOF, I have hereunto set my hand this 11th day of March,
1998.
Sue L. Gin
-------------------------
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
I, Mary L. Kwilos, a Notary Public in and for said County, in the State
aforesaid, DO HEREBY CERTIFY that SUE L. GIN, personally known to me to be the
same person whose name is subscribed to the foregoing instrument, appeared
before me this day in person, and acknowledged that she signed and delivered
said instrument as her free and voluntary act, for the uses and purposes therein
set forth.
GIVEN under my hand and notarial seal this 11th day of March, 1998.
Mary L. Kwilos
-------------------------
(Notary Public Seal) Notary Public
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director of Unicom Corporation, an Illinois
corporation, does hereby constitute and appoint JOHN W. ROWE and DAVID A.
SCHOLZ, and each of them, his true and lawful attorneys and agents, each with
full power and authority (acting alone and without the others) to execute in the
name and on behalf of the undersigned as such Director, the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1997, to be filed
with the Securities and Exchange Commission pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934, as amended; hereby granting to such
attorneys and agents, and each of them, full power of substitution and
revocation in the premises; and hereby ratifying and confirming all that such
attorneys and agents, or any of them, may do or cause to be done by virtue of
these presents.
IN WITNESS WHEREOF, I have hereunto set my hand this 11th day of March,
1998.
Donald P. Jacobs
--------------------------
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
I, Mary L. Kwilos, a Notary Public in and for said County, in the State
aforesaid, DO HEREBY CERTIFY that DONALD P. JACOBS, personally known to me to be
the same person whose name is subscribed to the foregoing instrument, appeared
before me this day in person, and acknowledged that he signed and delivered said
instrument as his free and voluntary act, for the uses and purposes therein set
forth.
GIVEN under my hand and notarial seal this 11th day of March, 1998.
Mary L. Kwilos
--------------------------
Notary Public
(Notary Public Seal)
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director of Unicom Corporation, an Illinois
corporation, does hereby constitute and appoint JOHN W. ROWE and DAVID A.
SCHOLZ, and each of them, his true and lawful attorneys and agents, each with
full power and authority (acting alone and without the others) to execute in the
name and on behalf of the undersigned as such Director, the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1997, to be filed
with the Securities and Exchange Commission pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934, as amended; hereby granting to such
attorneys and agents, and each of them, full power of substitution and
revocation in the premises; and hereby ratifying and confirming all that such
attorneys and agents, or any of them, may do or cause to be done by virtue of
these presents.
IN WITNESS WHEREOF, I have hereunto set my hand this 11th day of March,
1998.
Edgar D. Jannotta
---------------------------
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
I, Mary L. Kwilos, a Notary Public in and for said County, in the State
aforesaid, DO HEREBY CERTIFY that EDGAR D. JANNOTTA, personally known to me to
be the same person whose name is subscribed to the foregoing instrument,
appeared before me this day in person, and acknowledged that he signed and
delivered said instrument as his free and voluntary act, for the uses and
purposes therein set forth.
GIVEN under my hand and notarial seal this 11th day of March, 1998.
Mary L. Kwilos
--------------------------
(Notary Public Seal) Notary Public
<PAGE>
Exhibit (24)-2
Commonwealth Edison Company
Form 10-K File No. 1-1839
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director of Commonwealth Edison Company, an
Illinois corporation, does hereby constitute and appoint JOHN W. ROWE and DAVID
A. SCHOLZ, and each of them, his true and lawful attorneys and agents, each with
full power and authority (acting alone and without the others) to execute in the
name and on behalf of the undersigned as such Director, the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1997, to be filed
with the Securities and Exchange Commission pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934, as amended; hereby granting to such
attorneys and agents, and each of them, full power of substitution and
revocation in the premises; and hereby ratifying and confirming all that such
attorneys and agents, or any of them, may do or cause to be done by virtue of
these presents.
IN WITNESS WHEREOF, I have hereunto set my hand this 11th day of March,
1998.
Edward A. Brennan
-----------------------------------
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
I, Mary L. Kwilos, a Notary Public in and for said County, in the State
aforesaid, DO HEREBY CERTIFY that EDWARD A. BRENNAN, personally known to me to
be the same person whose name is subscribed to the foregoing instrument,
appeared before me this day in person, and acknowledged that he signed and
delivered said instrument as his free and voluntary act, for the uses and
purposes therein set forth.
GIVEN under my hand and notarial seal this 11th day of March, 1998.
Mary L. Kwilos
-----------------------------------
(Notary Public Seal) Notary Public
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director of Commonwealth Edison Company, an
Illinois corporation, does hereby constitute and appoint JOHN W. ROWE and DAVID
A. SCHOLZ, and each of them, his true and lawful attorneys and agents, each with
full power and authority (acting alone and without the others) to execute in the
name and on behalf of the undersigned as such Director, the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1997, to be filed
with the Securities and Exchange Commission pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934, as amended; hereby granting to such
attorneys and agents, and each of them, full power of substitution and
revocation in the premises; and hereby ratifying and confirming all that such
attorneys and agents, or any of them, may do or cause to be done by virtue of
these presents.
IN WITNESS WHEREOF, I have hereunto set my hand this 11th day of March,
1998.
James W. Compton
--------------------------
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
I, Mary L. Kwilos, a Notary Public in and for said County, in the State
aforesaid, DO HEREBY CERTIFY that JAMES W. COMPTON, personally known to me to be
the same person whose name is subscribed to the foregoing instrument, appeared
before me this day in person, and acknowledged that he signed and delivered said
instrument as his free and voluntary act, for the uses and purposes therein set
forth.
GIVEN under my hand and notarial seal this 11th day of March, 1998.
Mary L. Kwilos
--------------------------
(Notary Public Seal) Notary Public
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director of Commonwealth Edison Company, an
Illinois corporation, does hereby constitute and appoint JOHN W. ROWE and DAVID
A. SCHOLZ, and each of them, his true and lawful attorneys and agents, each with
full power and authority (acting alone and without the others) to execute in the
name and on behalf of the undersigned as such Director, the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1997, to be filed
with the Securities and Exchange Commission pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934, as amended; hereby granting to such
attorneys and agents, and each of them, full power of substitution and
revocation in the premises; and hereby ratifying and confirming all that such
attorneys and agents, or any of them, may do or cause to be done by virtue of
these presents.
IN WITNESS WHEREOF, I have hereunto set my hand this 11th day of March,
1998.
Bruce DeMars
--------------------------
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
I, Mary L. Kwilos, a Notary Public in and for said County, in the State
aforesaid, DO HEREBY CERTIFY that BRUCE DEMARS, personally known to me to be the
same person whose name is subscribed to the foregoing instrument, appeared
before me this day in person, and acknowledged that he signed and delivered said
instrument as his free and voluntary act, for the uses and purposes therein set
forth.
GIVEN under my hand and notarial seal this 11th day of March, 1998.
Mary L. Kwilos
----------------------------
(Notary Public Seal) Notary Public
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director of Commonwealth Edison Company, an
Illinois corporation, does hereby constitute and appoint JOHN W. ROWE and DAVID
A. SCHOLZ, and each of them, her true and lawful attorneys and agents, each with
full power and authority (acting alone and without the others) to execute in the
name and on behalf of the undersigned as such Director, the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1997, to be filed
with the Securities and Exchange Commission pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934, as amended; hereby granting to such
attorneys and agents, and each of them, full power of substitution and
revocation in the premises; and hereby ratifying and confirming all that such
attorneys and agents, or any of them, may do or cause to be done by virtue of
these presents.
IN WITNESS WHEREOF, I have hereunto set my hand this 11th day of March,
1998.
Sue L. Gin
------------------------
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
I, Mary L. Kwilos, a Notary Public in and for said County, in the State
aforesaid, DO HEREBY CERTIFY that SUE L. GIN, personally known to me to be the
same person whose name is subscribed to the foregoing instrument, appeared
before me this day in person, and acknowledged that she signed and delivered
said instrument as her free and voluntary act, for the uses and purposes therein
set forth.
GIVEN under my hand and notarial seal this 11th day of March, 1998.
Mary L. Kwilos
----------------------------
(Notary Public Seal) Notary Public
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director of Commonwealth Edison Company, an
Illinois corporation, does hereby constitute and appoint JOHN W. ROWE and DAVID
A. SCHOLZ, and each of them, his true and lawful attorneys and agents, each with
full power and authority (acting alone and without the others) to execute in the
name and on behalf of the undersigned as such Director, the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1997, to be filed
with the Securities and Exchange Commission pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934, as amended; hereby granting to such
attorneys and agents, and each of them, full power of substitution and
revocation in the premises; and hereby ratifying and confirming all that such
attorneys and agents, or any of them, may do or cause to be done by virtue of
these presents.
IN WITNESS WHEREOF, I have hereunto set my hand this 11th day of March,
1998.
Donald P. Jacobs
---------------------------
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
I, Mary L. Kwilos, a Notary Public in and for said County, in the State
aforesaid, DO HEREBY CERTIFY that DONALD P. JACOBS, personally known to me to be
the same person whose name is subscribed to the foregoing instrument, appeared
before me this day in person, and acknowledged that he signed and delivered said
instrument as his free and voluntary act, for the uses and purposes therein set
forth.
GIVEN under my hand and notarial seal this 11th day of March, 1998.
Mary L. Kwilos
-------------------------
(Notary Public Seal) Notary Public
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned, a Director of Commonwealth Edison Company, an
Illinois corporation, does hereby constitute and appoint JOHN W. ROWE and DAVID
A. SCHOLZ, and each of them, his true and lawful attorneys and agents, each with
full power and authority (acting alone and without the others) to execute in the
name and on behalf of the undersigned as such Director, the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1997, to be filed
with the Securities and Exchange Commission pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934, as amended; hereby granting to such
attorneys and agents, and each of them, full power of substitution and
revocation in the premises; and hereby ratifying and confirming all that such
attorneys and agents, or any of them, may do or cause to be done by virtue of
these presents.
IN WITNESS WHEREOF, I have hereunto set my hand this 11th day of March,
1998.
Edgar D. Jannotta
-----------------------------
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
I, Mary L. Kwilos, a Notary Public in and for said County, in the State
aforesaid, DO HEREBY CERTIFY that EDGAR D. JANNOTTA, personally known to me to
be the same person whose name is subscribed to the foregoing instrument,
appeared before me this day in person, and acknowledged that he signed and
delivered said instrument as his free and voluntary act, for the uses and
purposes therein set forth.
GIVEN under my hand and notarial seal this 11th day of March, 1998.
Mary L. Kwilos
-----------------------------
(Notary Public Seal) Notary Public
<PAGE>
Exhibit (99)-1
Unicom Corporation
Form 10-K, File No. 1-11375
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): JANUARY 30, 1998
UNICOM CORPORATION
(Exact name of registrant as specified in its charter)
Illinois 1-11375 36-3961038
(State or other (Commission File Number) (IRS Employer
jurisdiction of Identification No.)
incorporation)
37th Floor, 10 South Dearborn Street, 60690-3005
Post Office Box A-3005, Chicago, (Zip Code)
Illinois
(Address of principal executive
offices)
Registrant's telephone number, including area code: (312) 394-7399
<PAGE>
ITEM 5. OTHER EVENTS
The purpose of this Current Report is to file certain financial information
regarding the Registrant (Unicom Corporation) and its subsidiaries. Such
financial information is set forth in the exhibits to this Current Report.
Exhibits
<TABLE>
<C> <S>
(23) Consent of Independent Public Accountants
(27) Financial Data Schedule of Unicom Corporation
(99) Unicom Corporation and Subsidiary Companies--Certain Financial
Information as of and for the Year Ended December 31, 1997:
--Summary of Selected Consolidated Financial Data
--Price Range and Cash Dividends Paid Per Share of Common Stock
--1997 Consolidated Revenues and Sales
--Management's Discussion and Analysis of Financial Condition and
Results of Operations
--Report of Independent Public Accountants
--Statements of Consolidated Operations for the years 1997, 1996 and
1995
--Consolidated Balance Sheets--December 31, 1997 and 1996
--Statements of Consolidated Capitalization--December 31, 1997 and
1996
--Statements of Consolidated Retained Earnings (Deficit) for the
years 1997, 1996 and 1995
--Statements of Consolidated Cash Flows for the years 1997, 1996 and
1995
--Notes to Financial Statements
</TABLE>
2
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Unicom
Corporation
(Registrant)
By: Robert E. Berdelle
----------------------------------
Robert E. Berdelle
Comptroller
Date: February 18, 1998
3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
(23) Consent of Independent Public Accountants
(27) Financial Data Schedule of Unicom Corporation*
(99) Unicom Corporation and Subsidiary Companies--Certain Financial
Information as of and for the Year Ended December 31, 1997:
--Summary of Selected Consolidated Financial Data
--Price Range and Cash Dividends Paid Per Share of Common Stock
--1997 Consolidated Revenues and Sales
--Management's Discussion and Analysis of Financial Condition and
Results of Operations
--Report of Independent Public Accountants
--Statements of Consolidated Operations for the years 1997, 1996 and
1995
--Consolidated Balance Sheets--December 31, 1997 and 1996
--Statements of Consolidated Capitalization--December 31, 1997 and
1996
--Statements of Consolidated Retained Earnings (Deficit) for the years
1997, 1996 and 1995
--Statements of Consolidated Cash Flows for the years 1997, 1996 and
1995
--Notes to Financial Statements
</TABLE>
* Previously filed and incorporated by reference to Unicom Corporation's Form
8-K Current Report dated January 30, 1998.
<PAGE>
Exhibit (23)
Unicom Corporation
Form 8-K File No. 1-
11375
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated January 30, 1998 on Unicom Corporation and
subsidiary companies' consolidated financial statements as of and for the year
ended December 31, 1997, included as an Exhibit to this Form 8-K Current
Report of Unicom Corporation dated January 30, 1998, 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), Form S-8 Registration
Statement File No. 33-56991 (relating to Unicom Corporation's Long-Term
Incentive Plan), Form S-4 Registration Statement File No. 333-01003 (relating
to Unicom Corporation's Common Stock), Form S-8 Registration Statement File
No. 333-04749 (relating to Unicom Corporation's 1996 Directors' Fee Plan),
Form S-8 Registration Statement File No. 333-10613 (relating to Commonwealth
Edison Company's Employee Savings and Investment Plan) and Form S-8
Registration Statement File No. 333-39677 (relating to Unicom Corporation's
Management Deferred Compensation Plan). We also consent to the application of
our report to Commonwealth Edison Company and subsidiary companies' 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, 1997, 1996 and 1995 appearing in Exhibit 99 of this
Form 8-K.
ARTHUR ANDERSEN LLP
Chicago, Illinois
February 18, 1998
<PAGE>
Exhibit (99)
Unicom Corporation
Form 8-K File No. 1-11375
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1997 AND 1996
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
FORWARD-LOOKING INFORMATION
Except for historical data, the information contained herein constitutes
forward-looking statements. Forward-looking statements are inherently
uncertain and subject to risks. Such statements should be viewed with caution.
Actual results or experience could differ materially from the forward-looking
statements as a result of many factors. Forward-looking statements in this
report include, but are not limited to: (1) statements regarding expectations
of revenue reductions as a result of the 1997 Act in "Management's Discussion
and Analysis of Financial Condition and Results of Operations," subcaption
"Changes in the Electric Utility Industry" and in Note 2 of Notes to Financial
Statements, (2) statements regarding estimated capital expenditures in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," subcaptions "Liquidity and Capital Resources--UTILITY
OPERATIONS--Construction Program" and "Liquidity and Capital Resources--
UNREGULATED OPERATIONS--Construction Program," (3) statements regarding the
estimated return to service of certain nuclear generating units and the costs
of purchased power in "Management's Discussion and Analysis of Financial
Condition and Results of Operations," subcaption "Regulation--Nuclear
Matters," and "Management's Discussion and Analysis of Financial Condition and
Results of Operations," subcaption "Results of Operations--Purchased Power,"
(4) statements regarding the costs of decommissioning nuclear generating
stations in "Management's Discussion and Analysis of Financial Condition and
Results of Operations," subcaption "Regulation--Nuclear Matters" and in Note 1
of Notes to Financial Statements, under "Depreciation and Decommissioning,"
and (5) statements regarding cleanup costs associated with MGPs and other
remediation sites in Note 23 of Notes to Financial Statements. Management
cannot predict the course of future events or anticipate the interaction of
multiple factors beyond management's control and their effect on revenues,
project timing and costs. The statements regarding revenue reductions are
subject to unforeseen developments in the market for electricity in Illinois
resulting from regulatory changes. The statements regarding estimated capital
expenditures, estimated return to service of nuclear generation units,
decommissioning costs and cleanup costs are subject to changes in the scope of
work and manner in which the work is performed and consequent changes in the
timing and level of the projected expenditure, and are also subject to changes
in laws and regulations or their interpretation or enforcement. The statements
regarding the estimated return to service of nuclear generating units are
subject to the concurrence of the NRC with proceeding to power operations.
Unicom and ComEd make no commitment to disclose any revisions to the forward-
looking statements, or any facts, events or circumstances after the date
hereof that may bear upon forward-looking statements.
INDEX
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Definitions.............................................................. 2
Summary of Selected Consolidated Financial Data.......................... 3
Price Range and Cash Dividends Paid Per Share of Common Stock............ 3
1997 Consolidated Revenues and Sales..................................... 3
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 4-20
Report of Independent Public Accountants................................. 21
Consolidated Financial Statements--
Statements of Consolidated Operations for the years 1997, 1996 and
1995.................................................................. 22
Consolidated Balance Sheets--December 31, 1997 and 1996................ 23-24
Statements of Consolidated Capitalization--December 31, 1997 and 1996.. 25
Statements of Consolidated Retained Earnings (Deficit) for the years
1997, 1996 and 1995................................................... 26
Statements of Consolidated Cash Flows for the years 1997, 1996 and
1995.................................................................. 27
Notes to Financial Statements.......................................... 28-54
</TABLE>
1
<PAGE>
DEFINITIONS
The following terms are used in this document with the following meanings:
<TABLE>
<CAPTION>
TERM MEANING
- ---------------------- ------------------------------------------------------------------
<S> <C>
1997 Act The Illinois Electric Service Customer Choice and Rate Relief Law
of 1997
AFUDC Allowance for funds used during construction
APB Accounting Principles Board
CERCLA Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended
CFC Chlorofluorocarbon
Clean Air Amendments Clean Air Act Amendments of 1990
ComEd Commonwealth Edison Company
Cotter Cotter Corporation, a ComEd subsidiary
CTC Non-bypassable "competitive transition charge"
DOE U.S. Department of Energy
EPS Earnings per Share
ESPP Employee Stock Purchase Plan
FAC Fuel adjustment clause
FASB Financial Accounting Standards Board
FERC Federal Energy Regulatory Commission
FERC Order FERC Open Access Order No. 888 issued in April 1996
GAAP Generally Accepted Accounting Principles
ICC Illinois Commerce Commission
Indiana Company Commonwealth Edison Company of Indiana, Inc., a ComEd subsidiary
ISO Independent System Operator
MGP Manufactured gas plant
NEIL Nuclear Electric Insurance Limited
NERC North American Electric Reliability Council
NML Nuclear Mutual Limited
NRC Nuclear Regulatory Commission
O&M Operation and maintenance
Rate Order ICC rate order issued in January 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
S&P Standard & Poor's
Trusts ComEd Financing I and ComEd Financing II, ComEd subsidiaries
Trust Securities ComEd-obligated mandatorily redeemable preferred securities of
subsidiary trusts holding solely ComEd's subordinated debt
securities
Unicom Unicom Corporation
Unicom Energy Services Unicom Energy Services Inc., a Unicom subsidiary
Unicom Enterprises Unicom Enterprises Inc., a Unicom subsidiary
Unicom Resources Unicom Resources Inc., a Unicom subsidiary
UT Holdings UT Holdings Inc., a Unicom subsidiary
U.S. EPA U.S. Environmental Protection Agency
</TABLE>
2
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
SUMMARY OF SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
(MILLIONS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Operating revenues........... $ 7,083 $ 6,937 $ 6,910 $ 6,278 $ 5,260
Net income (loss)............ $ (853)(1) $ 666 $ 640(2) $ 355 $ 46(3)
Earnings (loss) per common
share (basic & diluted)..... $ (3.94)(1) $ 3.09 $ 2.98(2) $ 1.66 $ 0.22(3)
Cash dividends declared per
common share................ $ 1.60 $ 1.60 $ 1.60 $ 1.60 $ 1.60
Total assets (at end of
year)....................... $22,700 $23,388 $23,250 $23,121 $24,383
Long-term obligations at end
of year excluding current
portion:
Long-term debt, preference
stock and preferred
securities subject to
mandatory redemption
requirements............... $ 6,262 $ 6,487 $ 7,011 $ 7,745 $ 7,861
Accrued spent nuclear fuel
disposal fee and related
interest................... $ 693 $ 657 $ 624 $ 590 $ 567
Capital lease obligations... $ 438 $ 477 $ 376 $ 433 $ 323
Other long-term obligations. $ 3,183 $ 1,991 $ 1,826 $ 1,754 $ 1,718
</TABLE>
- --------
(1) Includes an extraordinary loss for the write-off of generation-related net
regulatory assets of $810 million (after-tax) or $3.75 per common share,
the loss on the early retirement of Zion nuclear generating station of
$523 million (after-tax) or $2.42 per common share and the positive impact
of a cumulative effect of a change in accounting principle for revenue
recognition of $197 million (after-tax) or $0.91 per common share.
(2) Includes an extraordinary loss related to the early redemption of long-
term debt of $20 million (after-tax) or $0.09 per common share.
(3) Includes the positive impact of a cumulative effect of a change in
accounting for income taxes of $10 million (after-tax) or $0.05 per common
share.
PRICE RANGE* AND CASH DIVIDENDS PAID PER SHARE OF COMMON STOCK
<TABLE>
<CAPTION>
1997 (BY QUARTERS) 1996 (BY QUARTERS)
--------------------------- ---------------------------
FOURTH THIRD SECOND FIRST FOURTH THIRD SECOND FIRST
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Price range:
High.................. 30 3/4 25 5/8 24 1/4 28 1/4 28 1/2 28 1/8 29 35 3/8
Low................... 18 1/2 21 18 1/2 19 1/4 24 7/8 22 5/8 26 27
Cash dividends paid.... 40c 40c 40c 40c 40c 40c 40c 40c
</TABLE>
* As reported as NYSE Composite Transactions.
- --------
Unicom's common stock is traded on the New York, Chicago and Pacific stock
exchanges, with the ticker symbol UCM. At December 31, 1997, there were
approximately 145,000 holders of record of Unicom's common stock.
1997 CONSOLIDATED REVENUES AND SALES
<TABLE>
<CAPTION>
%
OPERATING % KILOWATTHOUR INCREASE/ %
REVENUES INCREASE SALES (DECREASE) INCREASE
(THOUSANDS) OVER 1996 (MILLIONS) OVER 1996 CUSTOMERS OVER 1996
----------- --------- ------------ ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Residential............. $2,552,742 0.4% 22,151 (0.7)% 3,123,364 0.7%
Small commercial and
industrial............. 2,153,113 1.9 25,860 2.9 291,143 0.5
Large commercial and
industrial............. 1,467,574 1.5 24,074 0.7 1,566 1.0
Public authorities...... 505,907 0.6 7,322 (0.2) 12,180 0.3
Electric railroads...... 29,785 0.5 418 (1.4) 2 --
---------- ------ ---------
Ultimate consumers...... $6,709,121 1.1 79,825 0.9 3,428,255 0.7
Provision for revenue
refunds................ (45,470) 100.0 -- -- -- --
---------- ------ ---------
Net ultimate consumers.. $6,663,651 0.4 79,825 0.9 3,428,255 0.7
Sales for resale........ 336,480 43.2 15,679 28.7 51 15.9
Other revenues.......... 82,891 21.8 -- -- -- --
---------- ------ ---------
Total.................. $7,083,022 2.1 95,504 4.6 3,428,306 0.7
========== ====== =========
</TABLE>
3
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CHANGES IN THE ELECTRIC UTILITY INDUSTRY
Unicom and its predominant business, electric energy generation,
transmission and distribution, are in a period of fundamental change in the
manner in which customers obtain, and energy suppliers provide, energy
services. These changes are attributable to changes in technology, the
relaxation of regulatory barriers to utilities' respective service territories
as well as efforts to change the manner in which electric utilities are
regulated. Federal law and regulations have been amended to provide for open
transmission system access, and various states are considering, or have
adopted, new regulatory structures to allow access by some or all customers to
energy suppliers in addition to the local utility.
Electric Utility Industry. The electric utility industry has historically
consisted of vertically integrated companies which combine generation,
transmission and distribution assets; serve customers within relatively
defined service territories; and operate under extensive regulation with
respect to rates, operations and other matters. Utilities have operated under
a regulatory compact with the state, with a statutory obligation to serve all
of the electricity needs within their service territory in a nondiscriminatory
manner. Historically, investment and operating decisions have been made based
upon the utilities' respective assessment of the current and projected needs
of their customers. In view of this obligation, regulation has focused on
investment and operating costs, and rates have been based on a recovery of
some or all of such prudently incurred costs plus a return on invested
capital. Such rate regulation, and the ability of utilities to recover
investment and other costs through rates, have provided the basis for
recording certain costs as regulatory assets. These assets represent costs
which are allocated over future periods reflecting related regulatory
treatment, rather than expensed in the current period.
The 1997 Act. On December 16, 1997, the Governor of Illinois signed into law
the 1997 Act, which established a phased-process to introduce competition into
the electric industry in Illinois under a less regulated structure. The 1997
Act, as it applies to ComEd, 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
15% residential base rate reduction, commencing on August 1, 1998, is expected
to reduce ComEd's operating revenues by approximately $160 million and $375
million in 1998 and 1999, respectively, compared to 1997 rate levels. ComEd is
engaged in certain pricing experiments contemplated by the 1997 Act, which are
expected to reduce ComEd's operating revenues by approximately $30 million and
$60 million in 1998 and 1999, respectively, compared to 1997 rate levels,
notwithstanding the effects of customer growth.
The 1997 Act also provides for the collection of a CTC from customers who
choose another electric service provider during a transition period that
extends through 2006, and can be extended through 2008 with ICC approval if
certain factors are met. The CTC will be established in accordance with a
formula defined in the 1997 Act. The CTC, which will be applied on a cents per
kilowatthour basis, considers the revenue which would have been collected from
a customer under tariffed rates, reduced by 1) the revenue the utility will
receive for providing delivery services to the customer, 2) the market price
for electricity and 3) a defined mitigation factor which represents the
utility's opportunity to develop new revenue sources and achieve cost savings.
Notwithstanding these rate reductions, and subject to certain earnings
tests, a rate freeze will generally be in effect until at least January 1,
2005. During this period utilities may reorganize, sell or
4
<PAGE>
assign assets, retire or remove plants from service, and accelerate
depreciation or amortization of assets with limited ICC authority. Under the
earnings provision of the 1997 Act, if the earned return on common equity of a
utility during this period exceeds an established threshold, a portion of the
excess earnings must be refunded to customers. A utility may request a rate
increase during the rate freeze period when necessary to ensure the utility's
financial viability, but not before January 1, 2000.
Under the 1997 Act, utilities are required to continue to offer delivery
services, including the transmission and distribution of electric energy, such
that customers who select an alternative energy supplier can receive electric
energy from that supplier using existing transmission and distribution
facilities. Such services will continue to be offered under cost-based
regulated rates. The 1997 Act also requires utilities to establish or join an
ISO that will independently manage and control utility transmission systems.
Additionally, the 1997 Act includes the option to eliminate the FAC, the
leveling of certain regulatory requirements to permit operational flexibility,
the leveling of certain regulatory and tax provisions as applied to various
electric suppliers and a new more stringent liability standard applicable to
ComEd in the event of a major outage.
The 1997 Act also allows ComEd to unbundle a portion of its future revenues,
including tariffed and contract rates and CTC revenues, and issue securities
backed by these revenues. The proceeds from such security issuances must
generally be used to refinance outstanding debt or equity or for certain other
limited purposes. The total amount of ComEd's revenues securitized cannot
exceed $6.5 billion; approximately one-half of that amount can be issued in
the twelve-month period commencing on August 1, 1998.
As a result of the 1997 Act, 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 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 Related to the 1997 Act. ComEd's financial statements
reflect the application of 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 GAAP for non-regulated entities.
Because the 1997 Act is expected ultimately to lead to market-based pricing
of electric generation services, ComEd discontinued SFAS No. 71 regulatory
accounting practices for the generation portion of its business in December
1997. ComEd 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 were written off in the fourth quarter of 1997, resulting in a
charge of $810 million (after-tax) or $3.75 per common share. 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 carrying charges on Byron Unit 2 and
Braidwood Units 1 and 2 nuclear generating plants, generation-related
unamortized loss on reacquired debt and other miscellaneous generation-related
costs. The regulatory asset for the unrecovered nuclear decommissioning costs
of currently retired nuclear plants was not written off, as the 1997 Act
provides for the ongoing recovery of decommissioning costs through regulated
rates. See "Regulatory Assets and Liabilities" and "Depreciation and
Decommissioning" in Note 1 of Notes to Financial Statements.
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
5
<PAGE>
Assets and for 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. Notwithstanding the retirement and write-off of Zion
Station, as discussed below, ComEd has concluded, as a result of these
studies, that impairment, as defined in SFAS No. 121, does not currently exist
and that asset write downs are not 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 additional generating plants prior to expected
retirement dates, further write-offs will be required.
Pursuant to an option contained in the 1997 Act, ComEd filed a tariff on
December 16, 1997 to eliminate its FAC as of January 1, 1997. Under ComEd's
regulated rates, the FAC provided 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.
Elimination of the FAC requires ComEd to refund to customers any net FAC
charges billed from January 1, 1997 through December 31, 1997. Such FAC
charges were $25 million (after-tax) or $0.12 per common share. These costs,
as well as deferred underrecovered energy costs of $19 million (after-tax) or
$0.08 per common share which ComEd would have been entitled to recover if the
FAC had remained in effect, were recorded as a reduction to operating results
in 1997. Additionally, the elimination of the FAC and a transition to market-
based pricing for generation-related costs required 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 resulted in a charge in December 1997 of $60 million (after-
tax) or $0.28 per common share.
Federal Regulation. The Federal Energy Policy Act of 1992, among other
things, empowered FERC to introduce a greater level of competition into the
wholesale marketplace for electric energy. In April 1996, the FERC Order was
issued requiring utilities to file open access tariffs with regard to their
transmission systems. These tariffs set forth the terms, including prices,
under which other parties and the utility's wholesale marketing function may
use the utility's transmission system. ComEd has an approved open access
tariff with the FERC. The FERC Order requires the separation of the
transmission operations and wholesale marketing functions so as to ensure that
unaffiliated third parties have access to the same information as to system
availability and other requirements. The FERC Order further requires utilities
to operate an electronic bulletin board to make transmission price and access
data available to all potential users. A key feature of the FERC Order is that
it contemplates full recovery of a utility's costs "stranded" by competition.
These costs are "stranded" or "strandable" to the extent market-based rates
would be insufficient to allow for their full recovery. To recover stranded
costs, the utility must show that it had a reasonable expectation that it
would continue to serve the customer in question under its regulatory compact.
In addition, some governmental entities, such as cities, may elect to
"municipalize" a utility's distribution facilities through condemnation
proceedings. Such municipalities would then be able to purchase electric power
on a wholesale basis and resell it to customers over the newly acquired
facilities. The FERC Order provides for the recovery of a utility's investment
stranded by municipalization.
ComEd's Response to Regulatory Changes. ComEd is responding, and is
undertaking a significant planning effort to respond further, to the
developments within the utility industry and the 1997 Act and its potential
for strandable investment. During the past several years, such efforts have
focused on cost reductions, including personnel reductions, efficiencies in
purchasing and inventory management, and an incentive compensation system
keyed to cost control and improvement in shareholder value. Notwithstanding
these efforts, ComEd's costs remain high in comparison to its neighboring
utilities. Although ComEd's operating results and financial condition have
historically been affected by various rate proceedings, ComEd expects that the
changes in the national and
6
<PAGE>
Illinois electric energy marketplace, and ComEd's activities anticipating or
responding to them, will directly impact its operating results and financial
condition over the next several years.
ComEd anticipates that the 1997 Act, and the resultant increasing
competition to supply energy in Illinois and elsewhere, will have significant
effects upon its revenues and assets as it takes steps to adjust its
operations and services to meet the changing market for electric energy. Both
Unicom and ComEd have been examining methods of positioning themselves and
their affiliates to deal with those effects and to address the developing
opportunities and challenges. ComEd has been engaged in a broad-based
examination of its assets and operations, particularly nuclear and fossil
generation and generation-related (i.e., fuel and inventory) assets, with a
view toward rationalizing their investment and operating costs against their
ability to contribute to the revenues of ComEd under various market scenarios.
Such an assessment involves the consideration of numerous factors, including
revenue contribution, operating costs, impacts on ComEd's service obligations,
purchase commitments and the impact of various options. Such options include
continued operation with accelerated depreciation, indefinite suspension from
operation, sale to a third party and retirement or closure. As discussed
below, ComEd recently ceased nuclear generation operations and retired
facilities at its Zion Station. If ComEd retired or closed one or more
additional generating plants, particularly a nuclear plant, such retirement
would have a material impact on Unicom and ComEd's financial position and
results of operations. See "Liquidity and Capital Resources--UNREGULATED
OPERATIONS" below regarding Unicom Energy Services.
On January 14, 1998, the Boards of Directors of Unicom and ComEd authorized
the permanent cessation of nuclear generation operations and retirement of
facilities at ComEd's 2,080 megawatt Zion nuclear generating station. Such
retirement resulted in a charge for 1997 of $523 million (after-tax) or $2.42
per common share. The decision to close Zion Station was a result of an
ongoing analysis, which ComEd performed regarding the economic value of its
generating assets in light of the expected changes in the manner in which
electric energy is marketed and sold. The passage of the 1997 Act provided a
clearer basis for evaluating the costs and benefits of alternative courses of
action. In reaching the decision to cease nuclear generation operations at
Zion Station, the Boards also considered the significant uncertainty
associated with continued operation of the station due to the degradation of
the steam generators, and the expected operating costs associated with
continued station operation.
Notwithstanding the closure of Zion Station as a nuclear generating
facility, a portion of the station will continue to be used to provide voltage
support in the transmission system that serves ComEd's northern region. Such
support will require capital expenditures at the station as well as upgrades
to the transmission system at various points, in order to improve the ability
to import and transport power through the system. See Note 5 of Notes to
Financial Statements for additional information.
In April 1996, ComEd announced that it had finalized agreements to sell two
of its coal-fired generating stations, representing 1,600 megawatts of
generating capacity. Under the agreements, State Line and Kincaid stations are
expected to be sold for a total of $250 million, which approximates the book
value of the stations. The net proceeds are expected to be approximately $200
million (after-tax), which will be used to retire or redeem existing debt.
Under the terms of the sales, ComEd will enter into exclusive 15-year
purchased power agreements for the output of the plants. On March 31, 1997,
the ICC issued an order approving the agreements. A subsequent appeal has been
dropped by the intervening parties. The sale of State Line Station for its
approximate book value was finalized in December 1997. The net proceeds of the
sale, after income tax effects and closing costs, were approximately $56
million. The Kincaid Station sale is expected to be finalized during the first
quarter of 1998.
7
<PAGE>
ComEd joined with eight Midwestern utilities in the formation of a regional
Midwest ISO in January 1998. The Midwest ISO is a key element in accommodating
the restructuring of the electric industry and will promote enhanced
reliability of the transmission system, equal access to the transmission
system and increased competition. The Midwest ISO will establish an
independent body that will ultimately take over direction of the management of
the transmission system for the utilities involved. ComEd will retain
ownership of its transmission lines. The formation of the Midwest ISO is
subject to FERC approval.
LIQUIDITY AND CAPITAL RESOURCES
UTILITY OPERATIONS
Construction Program. ComEd has a construction program for the year 1998,
which consists principally of improvements to its existing nuclear and other
electric production, transmission and distribution facilities. It does not
include funds to add new generating capacity to ComEd's system. The program,
as currently approved by ComEd, includes the following estimated expenditures
(excluding nuclear fuel expenditures of approximately $160 million):
<TABLE>
<CAPTION>
1998
-----------
(MILLIONS
OF DOLLARS)
<S> <C>
Production....................................................... $425
Transmission and Distribution.................................... 415
General.......................................................... 90
----
$930
====
</TABLE>
Such estimated expenditures include $130 million toward the replacement of
the steam generators at ComEd's Braidwood Unit 1 and Byron Unit 1 nuclear
generating units by year-end 1998. The total replacement cost is estimated to
be $455 million, of which approximately $295 million has been incurred through
December 31, 1997 and $30 million will be incurred in 1999.
ComEd's forecasts of peak load indicate a need for additional resources to
meet demand, either through generating capacity, equivalent purchased power or
the development of additional demand-side management resources, in 1998 and
each year thereafter. However, ComEd believes that adequate resources,
including cost-effective demand-side management resources, non-utility
generation resources and other-utility power purchases, could be obtained in
sufficient quantities to meet such forecasted needs.
Purchase commitments for ComEd, principally related to construction and
nuclear fuel, approximated $286 million at December 31, 1997. In addition,
ComEd's estimated commitments for the purchase of coal are as follows:
<TABLE>
<CAPTION>
CONTRACT PERIOD COMMITMENT (1)
-------------- --------- --------------
<S> <C> <C>
Black Butte Coal Co................................ 1998-2000 $ 679
Decker Coal Co..................................... 1998-2014 427
Other commitments.................................. 1998 25
------
$1,131
======
</TABLE>
--------
(1) In millions of dollars, excluding transportation costs. 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 23 of Notes to
Financial Statements.
Capital Resources. ComEd forecasts that internal sources will provide
approximately three-fourths of the funds required for ComEd's 1998
construction program and other capital requirements, including nuclear fuel
expenditures, contributions to nuclear decommissioning funds, sinking fund
8
<PAGE>
obligations and refinancing of scheduled debt maturities. See Notes 10 and 12
of Notes to Financial Statements for the summaries of the annual sinking fund
requirements and scheduled maturities for ComEd preference stock and long-term
debt, respectively. The forecast takes into consideration the 1997 Act. See
"Changes in the Electric Utility Industry" above and "Regulation," subcaption
"Rate Matters" below for additional information.
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 21 of Notes to Financial Statements for
additional information concerning ComEd's nuclear fuel lease facility. ComEd
has $758 million of unused bank lines of credit at December 31, 1997, which
may be borrowed at various interest rates and may be secured or unsecured. The
interest rate is set at the time of a borrowing and is based on several
floating rate bank indices plus a spread, which is dependent upon the credit
ratings of ComEd's outstanding first mortgage bonds 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 13 of Notes to Financial Statements for additional
information concerning lines of credit. See the Statements of Consolidated
Cash Flows for the construction expenditures and cash flow from operating
activities for the years 1997, 1996 and 1995.
During 1997, ComEd sold and leased back $150 million of nuclear fuel through
its existing nuclear fuel lease facility. In 1997, ComEd issued $150 million
principal amount of 7.375% Notes due January 15, 2004, $150 million principal
amount of 7.625% Notes due January 15, 2007 and $150 million principal amount
of 8.50% Trust Securities due January 15, 2027, the proceeds of which were
used to discharge current maturities of long-term debt and to redeem $200
million principal amount of first mortgage bonds. See the Statements of
Consolidated Cash Flows and Note 7 of Notes to Financial Statements for
information regarding common stock activity.
As of January 30, 1998, ComEd has an effective "shelf" registration
statement with the SEC for the future sale of up to an additional $505 million
of debt securities and cumulative preference stock for general corporate
purposes of ComEd, including the discharge or refund of other outstanding
securities.
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-
Trust Securities.................................. baa3 BBB- BBB-
Commercial paper.................................. P-2 A-2 D-2
</TABLE>
In January 1997, Moody's changed the rating outlook on ComEd's securities
from "stable" to "negative" and Duff & Phelps added ComEd's securities to
"Rating Watch-Down." As of January 1998, S&P's rating outlook on ComEd
remained "stable."
Capital Structure. ComEd's ratio of long-term debt to total capitalization
has increased to 48.5% at December 31, 1997 from 46.1% at December 31, 1996.
This increase is related primarily to the write-offs recorded in the fourth
quarter of 1997 due to the discontinuance of regulatory accounting practices
for generation-related assets and the closure of Zion Station. Also as a
result of such write-offs, Unicom's retained earnings account had a deficit
balance of $21.2 million at December 31, 1997. As of December 31, 1997, $331
million of retained earnings had been appropriated for future dividend
payments.
9
<PAGE>
Year 2000 Conversion. Unicom, including ComEd, uses various software,
systems and technology throughout its businesses that will be affected by the
date change in the Year 2000 and any failure to address Year 2000 issues in a
timely manner could result in a material operational or financial risk.
Unicom's approach to addressing Year 2000 compliance issues is to upgrade or
remediate software, systems and technology that are not Year 2000 compliant
and that are not otherwise being replaced in accordance with Unicom's business
plans. Unicom is in the process of replacing certain of its financial, human
resources, payroll, and customer service and billing software with new
software that is Year 2000 compliant. In other cases, Unicom is upgrading
existing software to versions that are Year 2000 compliant where such upgrades
are available. In cases where Unicom has determined that it is not appropriate
to replace existing software that is not Year 2000 compliant, and that Year
2000-compliant upgrades are not available, Unicom is remediating the software
to make it Year 2000 compliant. Accordingly, Unicom is upgrading or
remediating certain software and systems in its nuclear and fossil electricity
generation business units and in its transmission and distribution and supply
management business units. Unicom is also in the process of evaluating whether
Year 2000 compliance issues will affect any of its key suppliers. The schedule
for the implementation of new Year 2000-compliant software and upgraded
versions of existing software, and the remediation of software not being
replaced or upgraded, contemplates that such efforts will be completed by the
end of 1998, except in the nuclear generation business unit, where completion
is scheduled for the third quarter of 1999. The total cost of remediating or
upgrading software, that is not being replaced or upgraded in accordance with
business plans, is currently estimated to be approximately $20 million.
Market Risks. ComEd is exposed to market risk due to changes in interest
rates and changes in the market price for electricity. Exposure for interest
rate changes relates to its long-term debt and preferred equity obligations.
Exposure to electricity market price risk relates to forward activities taken
to effectively manage the supply of, and demand for, the electric generation
capability of ComEd's generating plants. ComEd does not currently utilize
derivative commodity or financial instruments for trading or speculative
purposes.
10
<PAGE>
Interest Rate Exposure. The table below provides the fair value and average
interest, or fixed dividend rate, of Unicom's outstanding debt and preferred
stock equity instruments at December 31, 1997.
<TABLE>
<CAPTION>
FAIR
EXPECTED MATURITY DATE VALUE AS
UNICOM AND SUBSIDIARY ---------------------------------------- OF
COMPANIES (MILLIONS) 1998 1999 2000 2001 2002 THEREAFTER TOTAL 12/31/97
--------------------- ---- ---- ---- ---- ---- ---------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-Term Debt-
Fixed Rate............. $355 $152 $464 $111 $308 $4,296 $5,686 $6,020
Average Interest Rate.. 6.6% 8.8% 7.2% 7.4% 7.9% 8.0%
Variable Rate.......... $150 $160 $ -- $ -- $ -- $ 292 $ 602 $ 602
Average Interest Rate.. 6.5% 7.0% 3.7%
Preferred and Preference
Stock-
Subject to Mandatory
Redemption............ $ 31 $ 18 $ 88 $ 18 $ 18 $ 33 $ 206 $ 209
Average Dividend Rate.. 8.9% 8.8% 7.3% 8.8% 8.8% 8.8%
Not Subject to Manda-
tory Redemption....... $ -- $ -- $ -- $ -- $ -- $ 507 $ 507 $ 515
Average Dividend Rate.. 8.2%
Trust Securities........ $ -- $ -- $ -- $ -- $ -- $ 350 $ 350 $ 372
Average Dividend Rate.. 8.5%
</TABLE>
Market Price Exposure. In the normal course of business, ComEd utilizes
contracts for the forward sale and purchase of electricity to effectively
manage the utilization of its available generating capability. Such contracts
include forward contracts for wholesale sales of generating capability, during
periods when ComEd's available generating capability is expected to exceed the
demands of its retail, or native load, customers. Such contracts may also
include forward contracts for the purchase of generating capability during
periods when the expected market price for electricity is below ComEd's
expected incremental cost of generation. A sensitivity analysis has been
performed which concluded that the market price risk exposure of these
transactions is not material.
The market price of electricity is subject to price volatility associated
with changes in supply and demand in the electric supply markets. To limit the
market price risk associated with the forward commodity contracts described in
the preceding paragraph, ComEd has utilized energy put and call option
contracts and energy swap arrangements. A sensitivity analysis has been
performed which indicates that the market price risk exposure of these
financial instruments is not material.
UNREGULATED OPERATIONS
Unicom Enterprises is engaged, through subsidiaries, in energy service
activities which are not subject to utility regulation by state or federal
agencies. One of these subsidiaries, UT Holdings, provides district cooling
and related services to offices and other buildings in the city of Chicago
under a non-exclusive use agreement with Chicago for an initial term expiring
in 2014. District cooling involves, in essence, the production of chilled
water at one or more central locations and its circulation to customers'
buildings through a closed circuit of supply and return piping. Such water is
circulated through customers' premises primarily for air conditioning. This
process is used by customers in lieu of self-generated cooling. As a result of
the Clean Air Amendments, the manufacture of CFCs has been curtailed since
January 1996, thereby creating a marketing opportunity for non-CFC based
systems, such as UT Holdings' district cooling. UT Holdings is involved in
district cooling projects in other cities, generally working with the local
utilities.
Unicom Energy Services, another subsidiary of Unicom Enterprises, is engaged
in providing energy services including gas services, performance contracting,
distributed energy and active energy management systems. In 1997, Unicom
Energy Services entered into a joint venture with Sonat Marketing Company L.P.
to market natural gas and related services to large gas purchasers within
ComEd's service area in Northern Illinois and other Midwestern areas. As an
entry into the distributed energy market, Unicom Energy Services also entered
into an alliance with Allied Signal Power Systems, Inc., a subsidiary of
Allied Signal Inc., to market, install and service an electric
11
<PAGE>
energy generator developed by AlliedSignal, known as a TurboGenerator, in a
12-state region and the providence of Ontario, Canada. Unicom Energy Services
recently entered into an exclusive national distributorship agreement with
Engage Networks, Inc. to market active energy management software and related
hardware and services. As of December 31, 1997, Unicom Energy Services had
purchase commitments of approximately $7 million.
Construction Program. Unicom has approved capital expenditures for 1998 of
approximately $92 million for UT Holdings. UT Holdings has four district
cooling facilities serving customers in Chicago. Its third and fourth district
cooling facilities are being expanded to provide increased output for 1998 and
1999, respectively. As of December 31, 1997, UT Holdings' purchase
commitments, principally related to construction, were approximately $11
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. The availability of ComEd's dividends
to Unicom is dependent on ComEd's financial performance and cash position.
Other forms of financing by ComEd to Unicom or the unregulated subsidiaries of
Unicom, such as loans or additional equity investments, none of which is
expected, would be subject to prior approval by the ICC.
Unicom Enterprises has a $200 million credit facility which will expire in
November 1999, of which $40 million was unused as of December 31, 1997. The
credit facility can be used by Unicom Enterprises to finance investments in
unregulated businesses and projects, including UT Holdings and Unicom Energy
Services, and for general corporate purposes. The credit facility is
guaranteed by Unicom and includes certain covenants with respect to Unicom 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 13 of
Notes to Financial Statements for additional information regarding certain
covenants with respect to Unicom 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 Matters. In January 1995, the ICC issued its Rate Order in the
proceedings relating to ComEd's February 1994 rate increase request. The Rate
Order provided, among other things, for an increase in ComEd's total revenues
of approximately $302 million (excluding add-on revenue taxes) on an annual
basis. 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. The Rate Order was appealed by intervenors and
ComEd to the Illinois Appellate Court, which issued a decision on May 30, 1997
affirming the Rate Order in all respects with the exception of two issues,
which it remanded to the ICC for the purpose of providing further analysis.
Those issues relate to: (i) the manner in which certain costs are recovered
and which customers should pay those costs, and (ii) the proper rate of return
on common equity for ComEd. ComEd believes that the ICC can satisfy the
Appellate Court's remand directions on the basis of the existing record from
the ICC proceedings which led to the Rate Order. The Appellate Court's
decision was not appealed and the matter was returned to the ICC, where a
decision is expected early in the second quarter of 1998.
With respect to the first issue remanded to the ICC, ComEd does not believe
it will have any effect on the overall level of rates. With respect to the
rate of return on common equity issue, the ICC
12
<PAGE>
had determined in the Rate Order that ComEd's cost of common equity was
12.28%. Intervenors had submitted testimony recommending a return on common
equity of 11.50%. The Appellate Court decision requires the ICC to clarify the
basis for certain of its findings relating to its rejection of the
intervenors' recommendation and to analyze further how it arrived at its
conclusions. The Appellate Court stated that after reanalyzing these bases the
ICC can determine whether or not the cost of common equity determination it
adopted should still be followed. Each tenth of one percent change in the rate
of return on common equity has approximately an $8 million effect on the level
of annual revenues. The Appellate Court's decision does not have any immediate
effect on ComEd's rates or require any refunds. In connection with the
initiation of the appeal, ComEd committed to make refunds "in the event that a
final, non-appealable order is entered reversing the ICC's Rate Order."
Revenues of approximately $195 million would be subject to refund if the ICC
were to adopt the lower rate of return on common equity recommended by
intervenors. An ICC Hearing Examiner issued a proposed order in January 1998,
which if adopted by the ICC, would uphold the Rate Order and the associated
$302 million revenue increase on an annual basis.
See "Changes in the Electric Utility Industry" above for information
regarding the 1997 Act.
Nuclear Matters. Nuclear operations have been, and remain, an important
focus of ComEd--given the impact of such operations on overall O&M
expenditures and the ability of nuclear power plants to produce electric
energy at a relatively low marginal cost. ComEd operates a large number of
nuclear plants, ranging from the older Dresden and Quad Cities stations to the
more recently completed LaSalle, Byron and Braidwood stations, and is intent
upon safe, reliable and efficient operation. These plants were constructed
over a period of time in which technology, construction procedures and
regulatory initiatives and oversight have evolved, with the result that older
plants generally require greater attention and resources to meet regulatory
requirements and expectations as well as to maintain operational reliability.
As discussed in "Changes in the Electric Utility Industry" above, ComEd is
closing its Zion Station.
ComEd's Dresden, Zion and LaSalle nuclear generating stations are currently
on the NRC's list of plants to be monitored closely. Dresden Station has been
on the list since 1992 and LaSalle and Zion stations were added in January
1997. On January 21, 1998, the NRC stated that although Dresden Station has
demonstrated sustained improved performance that would warrant removal from
the list, continued evidence of cyclical performance at ComEd's other nuclear
generating stations indicate Dresden Station did not meet all the criteria for
removal from the list. At its January 21, 1998 meeting, the NRC acknowledged
improvements at LaSalle Station but concluded that a substantial amount of
work remains and the plant should remain on the list. The NRC also stated
that, based on a determination made prior to the announcement of the cessation
of power operations at the station, Zion should remain on the list. The
listing of the plants does not prevent ComEd from operating the generating
units; however, it does mean that the NRC will devote additional resources to
monitoring ComEd's operating performance and that ComEd will need to work to
demonstrate to the NRC the sustainability of improvements which it believes it
has undertaken and is continuing to implement. Also at the meeting, the NRC
noted a declining performance trend at Quad Cities Station. The NRC stated
that although operations performance at Quad Cities Station was generally
good, weaknesses were observed with respect to certain maintenance and
engineering activities. The NRC has indicated that it is monitoring ComEd's
ability to manage its nuclear operations in their entirety and that the
performance at any one facility will be viewed by the NRC in context with the
performance of ComEd's nuclear generating group as a whole.
In January 1997, the NRC took the unusual additional step of requiring ComEd
to submit information to allow the NRC to determine what actions, if any,
should be taken to assure that ComEd can safely operate its six nuclear
generating stations while sustaining performance improvement at each site. The
request also required ComEd to submit information regarding the criteria that
it has established, or planned to establish, to measure performance and to
explain ComEd's proposed actions if the criteria were not met. The request
stated the NRC staff's concerns with the "cyclical
13
<PAGE>
safety performance of ComEd nuclear stations," noting the presence on the list
of plants to be monitored closely of Dresden, LaSalle and Zion stations at
various times during the past 10 years. It also noted concerns regarding
"ComEd's ability to establish lasting and effective programs that result in
sustained performance improvement." The problems identified by the NRC are
consistent with weaknesses that had been identified in station self-
assessments initiated by ComEd, and management had already undertaken to
develop and implement programs designed to address these issues. ComEd
submitted a response to the NRC on March 28, 1997 and the NRC indicated in an
April 25, 1997 public meeting with representatives of ComEd management that
ComEd's response was generally adequate to demonstrate ComEd's ability to
operate its nuclear generating stations while sustaining performance
improvements. In a November 4, 1997 meeting with the NRC staff, the NRC
indicated that it believes ComEd's nuclear performance has shown improvement,
but that it is too early to conclude that lasting improvement has been
achieved. The NRC noted, as an exception to ComEd's general improving and
sustained performance in its nuclear operations, concerns regarding ComEd's
engineering efforts to resolve the longstanding fire protection issues at the
Quad Cities Station. The NRC and representatives of ComEd's management have
met and will continue to meet periodically in the future, to follow-up on
these matters.
ComEd has devoted, and intends to continue to devote, significant resources
to the management and operations of its nuclear generating stations. Over the
past several years, it has increased and reinforced station management with
managers drawn from other utilities which have resolved similar operational
and performance issues, including the appointment of a new Chief Nuclear
Officer in late 1997. It has also sought to identify, anticipate and address
operating and performance issues in a safe, cost-effective manner, while
seeking to improve the availability and capacity factors of its nuclear
generating units.
ComEd's activities, with respect to its nuclear generating stations, have
included improvements in operating and personnel procedures and repair and
replacement of equipment and can result in longer unit outages. LaSalle Units
1 and 2 and Quad Cities Units 1 and 2 are currently not operating. ComEd is
developing an integrated schedule for restarting the units at LaSalle Station.
It currently is expected that LaSalle Unit 1 will restart in the third quarter
of 1998 and LaSalle Unit 2 is expected to restart approximately six months
later. Both units at Quad Cities Station are expected to return to service in
the Spring of 1998.
The LaSalle outage and an outage at Zion were part of several outages of
nuclear and fossil generating stations that several utilities operating in the
Midwestern power grid (including ComEd) were expecting and experienced during
1997. Although ComEd met its customers' electricity demands, the expectation
of the NERC, prior to the beginning of the summer, had been that there could
have been electric energy shortages during summer peak demand periods due to
generating station outages in the Midwestern power grid and transmission
limitations on delivering power from neighboring systems. In response to these
regional circumstances and expectations, ComEd increased the availability of
its remaining nuclear and fossil generating capacity, reinforced transmission
capacity, negotiated the purchase of power and related transmission service
from third parties, and worked with a number of customers to manage the use
and demand for power. The NERC will be analyzing electric reliability for the
summer of 1998 in light of the potential for continued outages of nuclear
plants operated by several utilities in the Midwestern power grid.
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 and for the year 1995. In
1996, an intervenor filed testimony in the fuel reconciliation proceeding for
1994 seeking a refund of approximately $90 million relating to nuclear station
performance. The 1997 Act provides that the fuel reconciliation proceedings
for 1994 and 1996 must be concluded by the end of 1998. If refunds are
required in these proceedings, the refunds could have a material effect on
results of
14
<PAGE>
operations. The 1997 Act also provides that, because ComEd eliminated its FAC
effective January 1, 1997, the ICC shall not conduct a fuel reconciliation
proceeding for the year 1997 and subsequent years. See "Changes in the
Electric Utility Industry" above for information regarding the elimination of
ComEd's FAC.
Based on ComEd's most recent study, decommissioning costs, including the
cost of decontamination and dismantling, are estimated to aggregate $4.8
billion in current-year (1998) dollars, including a contingency allowance.
ComEd estimates it will expend approximately $12.9 billion, including a
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 as well as changes in the assumptions used in
making such estimates, including changes in technology, available alternatives
for the disposal of nuclear waste, and inflation. See Note 1 of Notes to
Financial Statements under "Depreciation and Decommissioning" for additional
information.
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 23 of Notes to Financial Statements.
RESULTS OF OPERATIONS
Unicom reported a loss per common share of $3.94 in 1997 and earnings per
common share of $3.09 and $2.98 in 1996 and 1995, respectively. 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 effect of ComEd's operations on Unicom's
financial results.
Net Income (Loss). The loss for 1997 was primarily due to ComEd's
discontinuation of regulatory accounting practices for the generation portion
of its business and other charges recorded as a result of the 1997 Act. The
1997 results also include the write-off for the closure of the Zion nuclear
generating station.
ComEd discontinued regulatory accounting practices for the generation
portion of its business in the fourth quarter of 1997 due to the 1997 Act.
Accordingly, ComEd's generation-related net regulatory assets (which represent
assets and liabilities properly recorded under regulatory accounting practices
but which would not be recorded under GAAP for non-regulated entities) were
written off, resulting in an extraordinary charge of $810 million (after-tax)
or $3.75 per common share.
In addition, as permitted under the 1997 Act, ComEd elected to eliminate its
FAC in December 1997, which resulted in a charge of $44 million (after-tax) or
$0.20 per common share. The reduction includes $25 million (after-tax) or
$0.12 per common share in net FAC charges billed to its customers in 1997,
which will be refunded to customers in 1998. The reduction also includes a
write-off of $19 million (after-tax) or $0.08 per common share in
underrecovered energy costs that ComEd would have been entitled to recover if
the FAC had remained in effect.
Also, 1997 results include the write down of ComEd's investment in uranium-
related properties to reflect costs which are not expected to be recovered in
a competitive market. The write down resulted in a charge of $60 million
(after-tax) or $0.28 per common share.
Partially offsetting the charges to operations for 1997 was a change in the
accounting method for revenue recognition to record ComEd's revenues
associated with service which has been provided to customers but has not yet
been billed at the end of each accounting period, retroactive
15
<PAGE>
to January 1, 1997. This change in accounting method had a positive impact of
$170 million (after-tax) or $0.79 per common share, consisting of a one-time
cumulative effect of the change for years prior to 1997 of $197 million
(after-tax) or $0.91 per common share, less the impact of the change on 1997
results of $27 million (after-tax) or $0.12 per common share.
On January 14, 1998, the Boards of Directors of Unicom and ComEd authorized
the cessation of nuclear generation operations at ComEd's Zion Station. The
closure resulted in a charge for 1997 of $523 million (after-tax) or $2.42 per
common share, reflecting the write-off of the unrecoverable portion of the
cost of plant and inventories and a liability for future closing costs.
ComEd's kilowatthour sales, including sales to wholesale customers,
increased 5% during 1997 compared to 1996, as discussed below. In 1997 O&M
expenses increased by 12%, as discussed below.
Also reducing 1997 operating results were increased fuel and purchased power
costs of $336 million, as discussed below. In addition, a 4% increase in
depreciation expense, primarily due to an increase in certain nuclear plant
depreciation resulted in a charge of $23 million (after-tax) or $0.11 per
common share.
The 1996 results reflect, among other factors, a 1% decrease in overall O&M
expenses as compared to 1995 and the positive effects of an income tax refund
related to prior years with an increase in operating results of $26 million
(after-tax) or $0.12 per common share and a reduction in real estate taxes
with an increase in operating results of $28 million (after-tax) or $0.13 per
common share. Approximately half of the reduction in real estate taxes is
related to the year 1995. The real estate tax reduction results primarily from
ongoing challenges by ComEd of the methodology used by local taxing
authorities to assess the value of ComEd's nuclear generating stations. The
1996 results also reflect a 9% reduction in the total of interest expense on
debt and dividend requirements on preferred and preference stocks compared to
1995, largely due to the early retirement of debt at the end of 1995. In
September 1996, the ICC approved ComEd's request to increase depreciation
charges on its nuclear generating units by $30 million for the year 1996,
resulting in a charge of $20 million (after-tax) or $0.09 per common share.
The 1995 results reflect higher revenues, primarily as a result of higher
kilowatthour sales, and the higher rate levels, which became effective in
January 1995 under the Rate Order. The higher kilowatthour sales reflect the
unusually hot summer weather in 1995. The 1995 results were also affected by
higher O&M expenses, which reflect a charge of $59 million (after-tax) or
$0.27 per common share for a voluntary employee separation offer to certain
ComEd employees. ComEd also recorded a charge of $20 million (after-tax) or
$0.09 per common share related to the early redemption of $645 million of
long-term debt.
Operating Revenues. ComEd's electric operating revenues reflect revenues
from sales to ultimate consumers (including residential, commercial and
industrial customers within its service territory), revenues from sales for
resale (i.e., sales to wholesale customers, principally other electric
utilities), and revenues from collections under its FAC for years prior to
1997 (which was intended to recover variations in ComEd's fuel cost for
generating electric energy and the energy portion of purchased power cost in
relation to the amount included in ComEd's base rates). Operating revenues are
affected by kilowatthour sales, rates and FAC recoveries. Kilowatthour sales,
in turn, are affected by weather, the level of economic activity within
ComEd's service area, and off-system or wholesale sales to other utilities.
Off-system sales opportunities are affected by a number of factors, including
nuclear generating availability and performance.
During 1997, electric operating revenues increased $139 million, primarily
due to a 29% increase in kilowatthour sales to wholesale customers.
Kilowatthour sales to ultimate consumers during 1997 increased 1% compared to
1996, reflecting continued economic growth in ComEd's service territory.
16
<PAGE>
Operating revenues in 1997 were reduced by the provision for revenue refunds
of $45 million, including revenue taxes, related to the elimination of the
FAC. Operating revenues increased $25 million in the year 1996, as compared to
1995, principally reflecting increased sales for resale and increased energy
cost recoveries under ComEd's then effective FAC, although kilowatthour sales
to ultimate consumers were down 1% from the prior year due to the cooler
summer weather compared to the exceptionally hot summer in the year 1995.
Operating revenues increased $632 million in the year 1995, as compared to the
year 1994, primarily due to an increase of 5% in kilowatthour sales to
ultimate consumers attributable to the hot summer weather, as well as a rate
increase that became effective in January 1995.
Fuel Costs. Changes in fuel expense for the years 1997, 1996 and 1995
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>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Cost of fuel consumed (per million Btu):
Nuclear........................................... $0.57 $0.53 $0.52
Coal.............................................. $2.28 $2.41 $2.43
Oil............................................... $3.90 $3.41 $3.06
Natural gas....................................... $2.69 $2.75 $1.85
Average all fuels................................. $1.33 $1.17 $1.05
Net generation of electric energy (millions of kilo-
watthours)......................................... 85,861 93,048 96,608
Fuel sources of kilowatthour generation:
Nuclear........................................... 57% 67% 73%
Coal.............................................. 39 30 24
Oil............................................... -- 1 --
Natural gas....................................... 4 2 3
------ ------ ------
100% 100% 100%
====== ====== ======
</TABLE>
The decrease in nuclear generation as a percentage of total generation for
1997 compared to the prior years is primarily due to outages at certain of
ComEd's nuclear generating stations. See "Regulation," subcaption "Nuclear
Matters" above for information regarding outages at certain of ComEd's nuclear
generating stations.
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 the year 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 "Nuclear Fuel," for information
related to the accounting for such costs.
Fuel Supply. Compared to other utilities, ComEd has relatively low average
fuel costs as a result of its reliance predominantly on lower cost nuclear
fuel. 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 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
December 31, 1997, ComEd had coal reserves of $282 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
17
<PAGE>
proceedings and coal reserves, see "Liquidity and Capital Resources" above and
"Coal Reserves" in Note 1 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. Purchased power costs
increased $255 million in 1997 compared to 1996, primarily due to outages at
certain of ComEd's nuclear generating stations. See "Regulation," subcaption
"Nuclear Matters" above, for information regarding outages at certain of
ComEd's nuclear generating stations.
The number and average cost of kilowatthours purchased were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ----- -----
<S> <C> <C> <C>
Kilowatthours (millions)............................... 16,672 6,129 2,475
Cost per kilowatthour.................................. 2.40c 2.37c 2.60c
</TABLE>
Purchased power is expected to increase in the year 1998 compared to the
year 1997 due to expected increased kilowatthour sales, lower nuclear
generation and higher costs for power purchased from other utilities.
Deferred Under or Overrecovered Energy Costs--Net. Operating expenses for
the years 1997, 1996 and 1995 include the net change in under or overrecovered
allowable energy costs under ComEd's FAC. Operating expenses in 1997 also
reflect the write-off of the unrecoverable energy costs related to the
elimination of ComEd's FAC. See "Changes in the Electric Utility Industry,"
"Fuel Costs" and "Fuel Supply" above and Note 1 of Notes to Financial
Statements under "Fuel Adjustment Clause."
Operation and Maintenance Expenses. O&M expenses include the expenses
associated with operating and maintaining ComEd's generation, transmission and
distribution assets as well as customer service, administrative overhead and
support. Given the variety of expense categories covered, there are a number
of factors which affect the level of such expenses within any given year. Two
major components of such expenses, however, are the costs associated with
operating and maintaining ComEd's nuclear and fossil generating facilities.
Generating station expenses are affected by the cost of materials, regulatory
requirements and expectations, the age of facilities as well as cost control
efforts.
During the three years presented in the financial statements, the aggregate
level of O&M expenses increased 12% in 1997 compared to 1996, decreased 1% in
1996 compared to 1995, and increased 4% in 1995 compared to 1994. All three
years include increases in the level of generating station expenses, as
discussed below. The year to year variations reflect efforts in 1996 and 1997
to improve nuclear generating station availability as well as to meet
regulatory requirements and expectations, and the impact in 1995 of an early
separation program offered to ComEd's employees, which resulted in a $97
million charge. Additional factors in each year also affected the level of O&M
expenses.
O&M expenses associated with nuclear generating stations increased $122
million, $88 million and $32 million for the years 1997, 1996 and 1995,
respectively, as a result of activities associated with the repair,
replacement and improvement of nuclear generating facility equipment. Since
1995, ComEd has increased the number and scope of maintenance activities
associated with its nuclear generating stations. Such efforts are the result
of station performance evaluations performed to identify the sources and
causes of unplanned equipment repairs. The goal of such efforts is to design
and implement cost effective repairs and improvements to increase station
availability. The efforts begun in 1995 are expected to continue through 1998.
The increase in O&M expenses associated with nuclear generating stations has
been driven by ComEd's objective to improve station availability, as well as
to meet regulatory requirements and expectations. ComEd is pursuing a program
to improve the quality of nuclear operations, including
18
<PAGE>
safety and efficiency, which is also expected to achieve a longer term goal of
improved availability and to be positioned to take advantage of opportunities
in a more competitive market. During the three years presented in the
financial statements, ComEd increased and reinforced station management with
managers drawn from other utilities which have resolved similar operating
issues. It has also sought to identify, anticipate and address nuclear station
operation and performance issues in a safe, cost-effective manner, while
seeking to improve the availability and capacity factors of its nuclear
generating units. Such activities have included improvements in operating and
personnel procedures and repair and replacement of equipment, and can result
in longer unit outages. Such activities have involved increased maintenance
and repair expenses in recent years.
O&M expenses associated with fossil generating stations increased $31
million, $4 million and $3 million for the years 1997, 1996 and 1995,
respectively. The increase related to fossil generating stations in 1997 is
primarily due to an increase in the repair and improvement of fossil
generating facility equipment in order to increase their general availability,
and to ensure their availability during the Summer of 1997. That increase was
partially offset by a reduction in personnel.
O&M expenses associated with transmission and distribution facilities
increased $15 million and $11 million for the years 1997 and 1996,
respectively, and decreased $3 million for the year 1995. The 1997 increase is
primarily due to increased emergency restoration of electric service and tree
trimming costs. The 1996 increase reflects higher maintenance expenses. The
decrease in 1995 reflects cost control efforts. O&M expenses associated with
customer-related activities increased $11 million, $17 million and $10 million
for the years 1997, 1996 and 1995, respectively. The increase in 1997 is
primarily due to an increase in uncollectible accounts.
O&M expenses also include compensation and benefits expenses. Since 1995,
ComEd has reduced the size of its workforce by offering incentives for
employees to leave the company voluntarily. Such incentives included both
current payments and earlier eligibility for post-retirement health care
benefits, resulting in charges of $39 million, $12 million and $97 million for
the years 1997, 1996 and 1995, respectively.
Other compensation and benefits expenses, excluding the effects of employee
separation plans, decreased $14 million, $20 million and $65 million for 1997,
1996 and 1995, respectively. The decrease in 1997 is primarily due to a
reduction in medical costs for active employees. The decreases in 1996 and
1995 are primarily related to a reduction of post-retirement health care
benefits costs, primarily as a result of a plan amendment effected in mid-1995
which required retired employee contributions to the plan for the first time.
Favorable experience also allowed the use of lower health care cost trend
rates, producing a lower charge in 1996 and 1995. O&M expenses also reflect
$41 million, $38 million and $65 million for employee incentive compensation
plan costs for the years 1997, 1996 and 1995, respectively. The payments,
which were made partly in cash and partly in shares of Unicom common stock,
were made under Unicom's Incentive Plans as the result of the achievement
during the indicated years of specified financial performance, operating
performance and increased shareholder value. The effects of inflation have
also increased O&M expenses during the years and are also reflected in the
increases and decreases discussed herein.
O&M expenses in 1997 also include $25 million for the additional write-off
of obsolete materials and supplies compared to 1996. O&M expenses associated
with certain administrative and general costs increased $35 million for the
year 1997. This increase was due to a variety of reasons including an increase
in the provision for vacation pay liability.
Depreciation. Depreciation expense increased for the years 1997, 1996 and
1995 as a result of additional nuclear plant depreciation and additions to
plant in service. The additional depreciation on ComEd's nuclear generating
units includes depreciation recorded for the year 1997 related to its steam
generators at Byron Unit 1 and Braidwood Unit 1 of $59 million, which are
expected to be replaced prior to year-end 1998, and the 1996 additional
depreciation initiative of $30 million. See "Depreciation and Decommissioning"
in Note 1 of Notes to Financial Statements.
19
<PAGE>
Interest on Debt. Changes in interest on long-term debt and notes payable
for the years 1997, 1996 and 1995 were due to changes in average interest
rates and in the amounts of long-term debt and notes payable outstanding.
Changes in interest on long-term debt also reflected new issues of debt, the
retirement and early redemption 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>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Long-term debt outstanding:
Average amount (millions).......................... $6,256 $6,644 $7,528
Average interest rate.............................. 7.65% 7.67% 7.78%
Notes payable outstanding:
Average amount (millions).......................... $ 153 $ 230 $ 51
Average interest rate.............................. 5.95% 5.79% 6.40%
</TABLE>
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 and issued an exposure draft in
February 1996 requesting written comment. If current electric utility industry
accounting practices for such decommissioning costs are changed, annual
provisions for decommissioning could increase and the estimated cost for the
decommissioning of operating nuclear plants after retirement could be recorded
as a liability rather than as accumulated depreciation. Decommissioning costs
of currently retired nuclear plants are recorded as a liability. Unicom and
ComEd do not believe that such changes, if required, would have an adverse
effect on the results of operations due to ComEd's ability to recover
decommissioning costs through rates.
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 under "AFUDC."
AFUDC does not contribute to the current cash flow of Unicom or ComEd. ComEd
discontinued SFAS No. 71 regulatory accounting practices in December 1997 for
the generation-related portion of its business. As a result, ComEd will not
record AFUDC, but will capitalize interest costs on its generation-related
construction work in progress and nuclear fuel in process beginning in 1998.
ComEd's ratios of earnings to fixed charges for the years 1997, 1996 and
1995 were 0.58, 2.90 and 2.79, respectively. ComEd's ratios of earnings to
fixed charges and preferred and preference stock dividend requirements for the
years 1997, 1996 and 1995 were 0.49, 2.48 and 2.39, respectively. Earnings for
1997 were inadequate to cover fixed charges and fixed charges and preferred
and preference stock dividend requirements by approximately $259 million and
$359 million, respectively. The deficiency is principally attributable to the
earnings impact of the closure of Zion Station.
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.
20
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of 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, 1997 and 1996, and the related
statements of consolidated operations, retained earnings (deficit) and cash
flows for each of the three years in the period ended December 31, 1997. 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, 1997 and 1996, and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted
accounting principles.
As discussed in Note 3, effective January 1, 1997, the Company changed its
method of accounting for revenue recognition.
Arthur Andersen LLP
Chicago, Illinois
January 30, 1998
21
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED OPERATIONS
The following Statements of Consolidated Operations for the years 1997, 1996
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, regulation, population,
business activity, competition, taxes, environmental control, energy use,
fuel, cost of labor, purchased power and other matters, the nature and effect
of which cannot now be determined.
<TABLE>
<CAPTION>
1997 1996 1995
----------- ---------- ----------
(THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Operating Revenues........................ $ 7,083,022 $6,937,024 $6,910,045
----------- ---------- ----------
Operating Expenses and Taxes:
Fuel.................................... $ 1,239,438 $1,157,855 $1,087,109
Purchased power......................... 400,055 145,299 64,378
Operation and maintenance............... 2,438,388 2,161,892 2,175,651
Depreciation............................ 989,817 953,700 898,034
Recovery of regulatory assets........... 15,272 15,272 15,272
Taxes (except income)................... 800,886 783,531 833,297
Income taxes............................ 317,778 489,545 526,518
Investment tax credits deferred--net.... (31,015) (33,378) (28,710)
----------- ---------- ----------
$ 6,170,619 $5,673,716 $5,571,549
----------- ---------- ----------
Operating Income.......................... $ 912,403 $1,263,308 $1,338,496
----------- ---------- ----------
Other Income and (Deductions):
Interest on long-term debt.............. $ (488,033) $ (515,285) $ (587,583)
Interest on notes payable............... (9,134) (13,308) (3,280)
Allowance for funds used during con-
struction--
Borrowed funds........................ 18,555 19,426 11,137
Equity funds.......................... 23,770 20,776 13,129
Income taxes applicable to nonoperating
activities............................. 11,230 7,812 5,085
Provision for dividends--
Preferred and preference stocks of
ComEd................................ (60,486) (64,424) (69,961)
ComEd-obligated mandatorily redeemable
preferred securities of subsidiary
trusts holding solely ComEd's subor-
dinated debt securities.............. (28,860) (16,960) (4,428)
Loss on nuclear plant closure........... (885,611) -- --
Income tax effect of nuclear plant clo-
sure................................... 362,952 -- --
Miscellaneous--net...................... (96,001) (35,245) (43,062)
----------- ---------- ----------
$(1,151,618) $ (597,208) $ (678,963)
----------- ---------- ----------
Net Income (Loss) Before Extraordinary
Items and Cumulative Effect of Change in
Accounting Principle..................... $ (239,215) $ 666,100 $ 659,533
Extraordinary Losses Less Applicable In-
come Taxes............................... (810,335) -- (20,022)
Cumulative Effect of Change in Accounting
Principle................................ 196,700 -- --
----------- ---------- ----------
Net Income (Loss)......................... $ (852,850) $ 666,100 $ 639,511
=========== ========== ==========
Average Number of Common Shares Outstand-
ing...................................... 216,330 215,500 214,692
Basic and Diluted Earnings (Loss) Per Com-
mon Share
Earnings (Loss) Per Common Share Before
Extraordinary Items and Cumulative Ef-
fect of Change in Accounting Principle. $ (1.10) $ 3.09 $ 3.07
Extraordinary Losses Less Applicable In-
come Taxes............................. (3.75) -- (0.09)
Cumulative Effect of Change in Account-
ing Principle.......................... 0.91 -- --
----------- ---------- ----------
Earnings (Loss) Per Common Share........ $ (3.94) $ 3.09 $ 2.98
=========== ========== ==========
Cash Dividends Declared Per Common Share.. $ 1.60 $ 1.60 $ 1.60
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
22
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
ASSETS 1997 1996
------ ----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Utility Plant:
Plant and equipment, at original cost (includes
construction work in progress of $1,131 million
and $1,034 million, respectively)................. $27,518,690 $27,900,632
Less--Accumulated provision for depreciation....... 11,646,445 11,479,991
----------- -----------
$15,872,245 $16,420,641
Nuclear fuel, at amortized cost.................... 906,043 973,961
----------- -----------
$16,778,288 $17,394,602
----------- -----------
Investments and Other Property:
Nuclear decommissioning funds...................... $ 1,855,697 $ 1,456,360
Subsidiary companies............................... 41,830 113,888
Other, at cost..................................... 216,243 146,547
----------- -----------
$ 2,113,770 $ 1,716,795
----------- -----------
Current Assets:
Cash............................................... $ 18,519 $ 8,729
Temporary cash investments......................... 102,702 51,821
Special deposits................................... 271 1,610
Receivables--
Customers........................................ 873,418 568,155
Other............................................ 132,449 108,044
Provisions for uncollectible accounts............ (17,544) (12,893)
Coal and fuel oil, at average cost................. 120,664 140,362
Materials and supplies, at average cost............ 255,338 324,485
Deferred unrecovered energy costs.................. -- 16,228
Deferred income taxes related to current assets and
liabilities....................................... 179,553 120,220
Prepayments and other.............................. 126,088 108,643
----------- -----------
$ 1,791,458 $ 1,435,404
----------- -----------
Deferred Charges and Other Noncurrent Assets:
Regulatory assets.................................. $ 1,685,235 $ 2,434,807
Coal reserves...................................... 194,769 291,324
Other.............................................. 136,230 114,922
----------- -----------
$ 2,016,234 $ 2,841,053
----------- -----------
$22,699,750 $23,387,854
=========== ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
23
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------
CAPITALIZATION AND LIABILITIES 1997 1996
------------------------------ ----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Capitalization (see accompanying statements):
Common stock equity.................................. $ 4,918,687 $ 6,104,380
Preferred and preference stocks of ComEd--
Without mandatory redemption requirements.......... 507,053 507,342
Subject to mandatory redemption requirements....... 174,328 217,901
ComEd-obligated mandatorily redeemable preferred
securities of subsidiary trusts holding solely
ComEd's subordinated debt securities*............... 350,000 200,000
Long-term debt....................................... 5,737,348 6,069,534
----------- -----------
$11,687,416 $13,099,157
----------- -----------
Current Liabilities:
Notes payable--
Commercial paper................................... $ 150,000 $ 121,000
Bank loans......................................... 8,150 7,750
Current portion of long-term debt, redeemable prefer-
ence stock and capitalized lease obligations of sub-
sidiary companies................................... 775,296 783,919
Accounts payable..................................... 505,444 429,492
Accrued interest..................................... 169,559 168,750
Accrued taxes........................................ 175,758 170,870
Dividends payable.................................... 107,001 101,850
Customer deposits.................................... 55,214 51,585
Accrued plant closing costs.......................... 135,000 --
Other................................................ 165,177 98,567
----------- -----------
$ 2,246,599 $ 1,933,783
----------- -----------
Deferred Credits and Other Noncurrent Liabilities:
Deferred income taxes................................ $ 3,850,308 $ 4,574,303
Nuclear decommissioning liability for retired plants. 1,301,000 275,700
Accumulated deferred investment tax credits.......... 602,122 655,662
Accrued spent nuclear fuel disposal fee and related
interest............................................ 692,673 657,448
Obligations under capital leases of subsidiary compa-
nies................................................ 437,950 476,669
Regulatory liabilities............................... 698,750 668,301
Other................................................ 1,182,932 1,046,831
----------- -----------
$ 8,765,735 $ 8,354,914
----------- -----------
Commitments and Contingent Liabilities (Note 23)
$22,699,750 $23,387,854
=========== ===========
</TABLE>
*As described in Note 11 of Notes to Financial Statements, the sole asset of
ComEd Financing I, a subsidiary trust of ComEd, is $206.2 million principal
amount of ComEd's 8.48% subordinated deferrable interest notes due
September 30, 2035. The sole asset of ComEd Financing II, also a subsidiary
trust of ComEd, is $154.6 million principal amount of ComEd's 8.50%
subordinated deferrable interest debentures due January 15, 2027.
The accompanying Notes to Financial Statements are an integral part of the
above statements.
24
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED CAPITALIZATION
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1997 1996
----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Common Stock Equity:
Common stock, without par value--
Outstanding--216,659,480 shares and 215,954,625
shares, respectively (excludes $7 million and $4
million as of December 31, 1997 and 1996,
respectively, held by trustee for Unicom Stock
Bonus Deferral Plan)............................. $ 4,943,211 $ 4,929,909
Preference stock expense of ComEd.................. (3,340) (3,526)
Retained earnings (deficit)........................ (21,184) 1,177,997
----------- -----------
$ 4,918,687 $ 6,104,380
----------- -----------
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--65,912 shares and 75,003 shares,
respectively................................... 2,096 2,385
Prior preferred stock, cumulative, $100 par value
per share-- No shares outstanding............... -- --
----------- -----------
$ 507,053 $ 507,342
----------- -----------
Subject to Mandatory Redemption Requirements:
Preference stock, cumulative, without par value--
Outstanding--2,058,560 shares and 2,496,775
shares, respectively........................... $ 205,016 $ 248,589
Current redemption requirements for preference
stock included in current liabilities........... (30,688) (30,688)
----------- -----------
$ 174,328 $ 217,901
----------- -----------
ComEd-Obligated Mandatorily Redeemable Preferred
Securities of Subsidiary Trusts holding solely
ComEd's subordinated debt securities................ $ 350,000 $ 200,000
----------- -----------
Long-Term Debt:
First mortgage bonds:
Maturing 1997 through 2002--5 3/8% to 9 3/8%..... $ 1,060,000 $ 1,320,000
Maturing 2003 through 2012--3.70% to 8 3/8%...... 1,440,400 1,440,400
Maturing 2013 through 2022--5.85% to 9 7/8%...... 1,791,000 1,991,000
Maturing 2023--7 3/4% to 8 3/8%.................. 560,000 560,000
----------- -----------
$ 4,851,400 $ 5,311,400
Sinking fund debentures, due 1999 through 2011--2
3/4% to 7 5/8%.................................... 100,298 105,164
Pollution control obligations, due 2007 through
2014--3.70% to 5 7/8%............................. 142,200 142,200
Other long-term debt............................... 1,193,818 1,100,833
Current maturities of long-term debt included in
current liabilities............................... (503,909) (540,505)
Unamortized net debt discount and premium.......... (46,459) (49,558)
----------- -----------
$ 5,737,348 $ 6,069,534
----------- -----------
$11,687,416 $13,099,157
=========== ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
25
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED RETAINED EARNINGS (DEFICIT)
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Balance at Beginning of Year............... $1,177,997 $ 856,893 $ 560,971
Add--Net income (loss)..................... (852,850) 666,100 639,511
---------- ---------- ----------
$ 325,147 $1,522,993 $1,200,482
---------- ---------- ----------
Deduct--
Cash dividends declared on common
stock................................. $ 346,225 $ 344,892 $ 343,619
Other capital stock transactions--net.. 106 104 (30)
---------- ---------- ----------
$ 346,331 $ 344,996 $ 343,589
---------- ---------- ----------
Balance at End of Year (Includes $331 mil-
lion of appropriated retained earnings at
December 31, 1997)........................ $ (21,184) $1,177,997 $ 856,893
========== ========== ==========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
26
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Cash Flow From Operating Activities:
Net income (loss)...................... $ (852,850) $ 666,100 $ 639,511
Adjustments to reconcile net income
(loss) to net cash provided by oper-
ating activities:
Depreciation and amortization........ 1,036,271 990,779 949,413
Deferred income taxes and investment
tax credits--net.................... (345,042) 129,697 156,817
Extraordinary loss related to early
redemption of long-term debt........ -- -- 33,158
Extraordinary loss related to write-
off of certain net regulatory as-
sets................................ 810,335 -- --
Cumulative effect of a change in ac-
counting principle.................. (196,700) -- --
Loss on nuclear plant closure........ 885,611 -- --
Provisions for revenue refunds....... 45,470 -- --
Equity component of allowance for
funds used during construction...... (23,770) (20,776) (13,129)
Recovery of regulatory assets........ 15,272 15,272 15,272
Provisions/(payments) for liability
for separation costs--net........... 15,986 (29,888) 60,713
Net effect on cash flows of changes
in:
Receivables........................ 24,083 71,497 (178,665)
Coal and fuel oil.................. 19,698 (11,186) (20,304)
Materials and supplies............. 41,659 9,053 51,073
Accounts payable excluding nuclear
fuel lease principal payments and
separation costs--net............. 259,810 104,366 460,705
Accrued interest and taxes......... (17,903) (47,291) (2,684)
Other changes in certain current
assets and liabilities............ 39,005 13,850 26,637
Other--net........................... 170,832 69,447 153,916
----------- ----------- -----------
$ 1,927,767 $ 1,960,920 $ 2,332,433
----------- ----------- -----------
Cash Flow From Investing Activities:
Construction expenditures.............. $(1,043,311) $ (982,274) $ (927,327)
Nuclear fuel expenditures.............. (185,373) (281,833) (289,118)
Sale of generating plant............... 60,791 -- --
Equity component of allowance for
funds used during construction........ 23,770 20,776 13,129
Contributions to nuclear
decommissioning funds................. (114,825) (119,281) (132,653)
Other investments and special depos-
its................................... (13,246) (2,116) (1,601)
----------- ----------- -----------
$(1,272,194) $(1,364,728) $(1,337,570)
----------- ----------- -----------
Cash Flow From Financing Activities:
Issuance of securities--
Long-term debt....................... $ 362,663 $ 251,902 $ 62,000
ComEd-obligated mandatorily redeem-
able preferred securities of subsid-
iary trusts holding solely ComEd's
subordinated debt securities........ 150,000 -- 200,000
Capital stock........................ 15,778 17,754 25,507
Retirement and redemption of securi-
ties--
Long-term debt....................... (736,740) (433,084) (1,137,272)
Capital stock........................ (44,111) (44,513) (17,935)
Deposits and securities held for re-
tirement and redemption of securi-
ties.................................. -- -- 106
Premium paid on early redemption of
long-term debt........................ (9,500) -- (25,823)
Cash dividends paid on common stock.... (345,936) (344,553) (343,375)
Proceeds from sale/leaseback of nu-
clear fuel............................ 149,955 316,617 193,215
Nuclear fuel lease principal payments.. (166,411) (211,741) (237,845)
Increase (Decrease) in short-term
borrowings............................ 29,400 (139,400) 261,000
----------- ----------- -----------
$ (594,902) $ (587,018) $(1,020,422)
----------- ----------- -----------
Increase (Decrease) in Cash and Tempo-
rary Cash Investments.................. $ 60,671 $ 9,174 $ (25,559)
Cash and Temporary Cash Investments at
Beginning of Year...................... 60,550 51,376 76,935
----------- ----------- -----------
Cash and Temporary Cash Investments at
End of Year............................ $ 121,221 $ 60,550 $ 51,376
=========== =========== ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
27
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Corporate Structure and Basis of Presentation. Unicom is the parent holding
company of ComEd and Unicom Enterprises. ComEd, an electric utility, is the
principal subsidiary of Unicom. Unicom Enterprises is an unregulated
subsidiary of Unicom and is engaged, through its subsidiaries, in energy
service activities. Unicom Resources is also an unregulated subsidiary of
Unicom and is engaged in the development of business ventures.
The consolidated financial statements include the accounts of Unicom, ComEd,
the Indiana Company, the Trusts 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.
Use of Estimates. The preparation of financial statements in conformity with
GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
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 GAAP applicable
to rate-regulated enterprises for the non-generation portion of its business,
including the effects of the ratemaking process in accordance with SFAS No.
71, Accounting for the Effects of Certain Types of Regulation. Such effects on
the non-generation portion of its business concern mainly the time at which
various items enter into the determination of operating results in order to
follow the principle of matching costs with the applicable revenues collected
from or returned to customers through future rates. See Note 2 for information
regarding the write-off of generation-related regulatory assets and
liabilities in December 1997.
ComEd's investment in generation-related net utility plant, including
construction work in progress and nuclear fuel, and excluding the
decommissioning costs included in the accumulated provision for depreciation,
not subject to cost-based rate regulation, was $12.4 billion and $13.1 billion
at December 31, 1997 and 1996, respectively.
28
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
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, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1997 1996
---------- ----------
(THOUSANDS OF
DOLLARS)
<S> <C> <C>
Regulatory assets:
Deferred income taxes (1)............................... $ 785,354 $1,649,037
Deferred carrying charges (2)........................... -- 396,879
Nuclear decommissioning costs--Dresden Unit 1 (3)....... 268,369 174,621
Nuclear decommissioning costs--Zion Units 1 and 2 (4)... 579,777 --
Unamortized loss on reacquired debt (5)................. 51,735 148,380
Other................................................... -- 65,890
---------- ----------
$1,685,235 $2,434,807
========== ==========
Regulatory liabilities:
Deferred income taxes (1)............................... $ 698,750 $ 668,301
========== ==========
</TABLE>
- --------
(1) Recorded in compliance with SFAS No. 109, Accounting for Income Taxes.
(2) Recorded as authorized in the Remand Order.
(3) Amortized over the remaining current NRC license life of Dresden Station.
See "Depreciation and Decommissioning" below for additional information.
(4) Amortized over the remaining current NRC license life of Zion Station. See
"Depreciation and Decommissioning" below for additional information.
(5) Amortized over the remaining lives of the long-term debt issued to finance
the reacquisition. See "Loss on Reacquired Debt" below for additional
information.
The 1997 regulatory assets and liabilities' balances reflect the write-off
of generation-related regulatory assets and liabilities and the recording of
nuclear decommissioning costs for Zion Station. See "Depreciation and
Decommissioning" below and Note 2 for additional information.
Fuel Adjustment Clause. The FAC adopted by the ICC provided 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 had recorded
under or overrecoveries of allowable fuel and energy costs which, under the
clause, were recoverable or refundable in subsequent months. Pursuant to an
option contained in the 1997 Act, ComEd filed a tariff on December 16, 1997 to
eliminate its FAC as of January 1, 1997. See Note 2 for additional
information.
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 the 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 presently being recovered through
base rates. See Note 14 for additional information concerning the disposal of
spent nuclear fuel, the one-time fee and the interest accrual on the one-time
fee. Nuclear fuel expenses, including leased fuel costs and provisions for
spent nuclear fuel disposal costs, were $298 million, $354 million and $391
million for the years 1997, 1996 and 1995, respectively.
The balance of nuclear fuel, at amortized cost, on the Consolidated Balance
Sheets includes amounts to be recovered for assessments by the DOE to fund a
portion of the cost for the decontamination and decommissioning of uranium
enrichment facilities owned and previously
29
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
operated by the DOE. As of December 31, 1997 and 1996, an asset related to the
assessments of $156 million and $168 million, respectively, was recorded. As
of December 31, 1997 and 1996, a corresponding liability of $144 million and
$157 million, respectively, was recorded, of which $16 million was included in
other current liabilities on the Consolidated Balance Sheets.
Coal Reserves. At December 31, 1997 and 1996, ComEd had coal reserves of
$282 million and $364 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 expects to recover from its
customers the costs of the coal reserves, as coal is used for the generation
of electricity, through base rates. Such fuel costs expected to be recovered
within one year, amounting to $87 million and $73 million at December 31, 1997
and 1996, respectively, have been included in current assets as prepayments
and other on the Consolidated Balance Sheets. ComEd expects to fully recover
the costs of the coal reserves before the year 2001. See Note 23 for
additional information concerning ComEd's coal commitments.
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, industrial and wholesale customers.
ComEd's electric service territory has an area of approximately 11,300 square
miles and an estimated population of approximately 8 million as of December
31, 1997. It includes the city of Chicago, an area of about 225 square miles
with an estimated population of approximately 3 million from which ComEd
derived approximately one-third of its ultimate consumer revenues in 1997.
ComEd had 3.4 million electric customers at December 31, 1997.
In 1997, ComEd changed its accounting method for revenue recognition to
record ComEd's revenues associated with service which has been provided to
customers but has not yet been billed at the end of each accounting period,
retroactive to January 1, 1997. See Note 3 for information regarding the
cumulative effect of a change in accounting principle on prior years and the
effect on the current year. See Note 2 for information regarding the expected
effects of the August 1, 1998 rate reduction and certain pricing experiments.
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 3.36%, 3.25% and 3.14% for the years 1997, 1996 and 1995,
respectively, of average depreciable utility plant and equipment, including
the effects of additional depreciation on ComEd's nuclear generating units.
The annual rate for nuclear plant and equipment, excluding separately
collected decommissioning costs and additional depreciation, is 2.88%. The
additional depreciation on ComEd's nuclear generating units includes
depreciation recorded for the year 1997 related to its steam generators at
Byron Unit 1 and Braidwood Unit 1 of $59 million, which are expected to be
replaced prior to year-end 1998, and the 1996 additional depreciation
initiative of $30 million. See Note 4 for additional information on the 1996
additional depreciation initiative.
Nuclear plant decommissioning costs are accrued over the current NRC license
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
30
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
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's method of accounting for decommissioning costs.
Dismantling is expected to occur relatively soon after the end of the current
NRC license life of each related generating station. The accrual for
decommissioning is based on the prompt removal method authorized by NRC
guidelines. ComEd's 10 operating units have remaining current NRC license
lives ranging from 8 to 30 years. ComEd's Zion Station and its first nuclear
unit, Dresden Unit 1, are retired and are expected to be dismantled at the end
of the current NRC license life of the last unit at each of those stations,
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 $4.8
billion in current-year (1998) dollars, including a contingency allowance.
ComEd estimates that it will expend approximately $12.9 billion, including a
contingency allowance, for decommissioning costs primarily during the period
from 2007 through 2032. Such costs are expected to be funded by the 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 as well as changes in the assumptions used in
making such estimates, including changes in technology, available alternatives
for the disposal of nuclear waste and inflation.
Pursuant to the Rate Order, since 1995, ComEd has collected decommissioning
costs from its ratepayers in conjunction with a rider, which allows annual
adjustments to decommissioning cost collections outside the context of a
traditional rate proceeding. Recovery of decommissioning costs through the
rider will continue under the 1997 Act. The current estimated decommissioning
costs include 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. Under its most recent annual rider,
filed with the ICC on February 28, 1997, ComEd has proposed to decrease its
estimated annual decommissioning cost accrual from $108.8 million to $107.5
million. The reduction primarily reflects stronger than expected after-tax
returns on the external trust funds in 1996 and lower than expected escalation
in low-level waste disposal costs, partially offset by the higher current-year
cost estimates, which include a contingency allowance.
The proposed annual decommissioning cost accrual of $107.5 million was
determined using the following assumptions: the decommissioning cost estimate
of $4.8 billion in current-year (1998) dollars, after-tax earnings on the tax-
qualified and nontax-qualified decommissioning funds of 7.30% and 6.26%,
respectively, and an escalation rate for future decommissioning costs of 4.1%.
The annual accrual of $107.5 million provided over the current NRC license
lives of the nuclear plants, coupled with the expected fund earnings and
amounts previously recovered in rates, is expected to aggregate approximately
$12.9 billion.
For the 10 operating nuclear units, decommissioning costs are recorded as
portions of depreciation expense and accumulated provision for depreciation on
the Statements of Consolidated Operations and the Consolidated Balance Sheets,
respectively. As of December 31, 1997, the total decommissioning costs
included in the accumulated provision for depreciation were $1,570 million.
For ComEd's retired nuclear unit, Dresden Unit 1, the total estimated
liability at December 31, 1997 in current-year (1998) dollars of $365 million
was recorded under nuclear decommissioning costs for
31
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
retired plants and the unrecovered portion of the liability of $268 million
was recorded as a regulatory asset on the Consolidated Balance Sheets. The
increase from December 31, 1996 to December 31, 1997 in the total estimated
liability related to Dresden Unit 1, and the unrecovered portion of that
liability, is due to higher current-year cost estimates, which include a
contingency allowance.
For ComEd's retired Zion nuclear station, the total estimated liability at
December 31, 1997 in current-year (1998) dollars of $936 million was recorded
under nuclear decommissioning costs for retired plants and the unrecovered
portion of the liability of $580 million was recorded as a regulatory asset on
the Consolidated Balance Sheets.
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
current NRC license lives of the nuclear plants. At December 31, 1997, the
past accruals that are required to be contributed to the external trusts
aggregate $167 million. The fair value of funds accumulated in the external
trusts at December 31, 1997 was $1,856 million, which includes pre-tax
unrealized appreciation of $429 million. The earnings on the external trusts
accumulate in the fund balance and accumulated provision for depreciation.
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 basis and
the borrowed funds component of AFUDC is recorded on a pre-tax basis. The
average annual capitalization rates were 9.39%, 9.02% and 9.52% for the years
1997, 1996 and 1995, respectively. AFUDC does not contribute to the current
cash flow of Unicom or ComEd. ComEd discontinued SFAS No. 71 regulatory
accounting practices in December 1997 for the generation portion of its
business. As a result, ComEd will not record AFUDC, but will capitalize
interest costs on its generation-related construction work in progress and
nuclear fuel in process beginning in 1998.
Interest. Total interest costs incurred on debt, leases and other
obligations were $598 million, $626 million and $696 million for the years
1997, 1996 and 1995, respectively.
Debt Discount, Premium and Expense. Discount, premium and expense on long-
term debt of ComEd 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 in connection with the refinancing 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 for non-
generation related financings. See "Regulatory Assets and Liabilities" above
and Note 2 for additional information.
32
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
Stock Option Awards/Employee Stock Purchase Plan. Unicom has elected to
adopt SFAS No. 123, Accounting for Stock-Based Compensation, for disclosure
purposes only. Unicom accounts for its stock option awards and ESPP under APB
Opinion No. 25, Accounting for Stock Issued to Employees. See Note 8 for
additional information.
Earnings per Share. Unicom adopted SFAS No. 128, Earnings per Share, which
established standards for computing and presenting EPS. Unicom has presented
basic EPS on the Statements of Consolidated Operations for the years 1997,
1996 and 1995. Basic EPS and diluted EPS for the years presented are the same.
The diluted average number of common shares outstanding was 216,330,000,
215,686,000 and 214,828,000 for the years 1997, 1996 and 1995, respectively.
Energy Risk Management Contracts. In the normal course of business ComEd
utilizes contracts for the forward sale and purchase of energy to effectively
manage the utilization of its available generating capability. ComEd also
utilizes put and call option contracts and energy swap arrangements to limit
the market price risk associated with the forward commodity contracts. As
ComEd does not currently utilize financial or commodity instruments for
trading or speculative purposes, any gains or losses on forward commodity
contracts are recognized when the underlying transactions affect earnings.
Revenues and expenses associated with market price risk management contracts
are recognized immediately for contracts with terms of less than one year and
are amortized over the length of the term of contracts covering more than one
year.
Reclassifications. Certain prior year amounts have been reclassified to
conform with current period presentation. These reclassifications had no
effect on operating results.
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 years 1997, 1996
and 1995 was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Supplemental Cash Flow Information:
Cash paid during the year for:
Interest (net of amount capitalized)............ $512,050 $538,351 $604,932
Income taxes (net of refunds)................... $264,802 $234,743 $367,708
Supplemental Schedule of Non-Cash Investing and
Financing Activities:
Capital lease obligations incurred by subsidiary
companies........................................ $158,412 $320,975 $198,577
</TABLE>
(2) ACCOUNTING EFFECTS RELATED TO THE 1997 ACT
On December 16, 1997, the Governor of Illinois signed into law the 1997 Act
which, as it applies to ComEd, 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
15% residential base rate reduction, commencing on August 1, 1998, is expected
to reduce ComEd's operating revenues by approximately $160 million and $375
million in 1998 and 1999, respectively, compared to 1997 rate levels. ComEd is
engaged in certain pricing experiments contemplated by the 1997 Act, which are
expected to reduce its operating revenues by approximately $30 million and $60
million in 1998 and 1999, respectively, compared to 1997 rate levels,
notwithstanding the effects of customer growth.
33
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
The 1997 Act also provides for the collection of a CTC from customers who
choose another electric service provider during a transition period that
extends through 2006, and can be extended through 2008 with ICC approval if
certain factors are met. The CTC will be established in accordance with a
formula defined in the legislation. The CTC, which will be applied on a cents
per kilowatthour basis, considers the revenue which would have been collected
from a customer under tariffed rates, reduced by 1) the revenue the utility
will receive for providing delivery services to the customer, 2) the market
price for electricity and 3) a defined mitigation factor which represents the
utility's opportunity to develop new revenue sources and achieve cost savings.
Notwithstanding these rate reductions, and subject to certain earnings
tests, a rate freeze will generally be in effect until at least January 1,
2005. During this period utilities may reorganize, sell or assign assets,
retire or remove plants from service, and accelerate depreciation or
amortization of assets with limited ICC authority. Under the earnings
provision of the legislation, if the earned return on common equity of a
utility during this period exceeds an established threshold, a portion of the
excess earnings must be refunded to customers. A utility may request a rate
increase during the rate freeze period when necessary to ensure the utility's
financial viability, but not before January 1, 2000.
Under the 1997 Act, utilities are required to continue to offer delivery
services, including the transmission and distribution of electric energy, such
that customers who select an alternative energy supplier can receive electric
energy from that supplier using existing transmission and distribution
facilities. Such services will continue to be offered under cost-based
regulated rates. The 1997 Act also requires utilities to establish or join an
ISO that will independently manage and control utility transmission systems.
Additionally, the 1997 Act includes the option to eliminate the FAC, the
leveling of certain regulatory requirements to permit operational flexibility,
the leveling of certain regulatory and tax provisions as applied to various
electric suppliers and a new more stringent liability standard applicable to
ComEd in the event of a major outage.
The 1997 Act also allows ComEd to unbundle a portion of its future revenues,
including tariffed and contract rates and CTC revenues and issue securities
backed by these revenues. The proceeds from such security issuances must
generally be used to refinance outstanding debt or equity or for certain other
limited purposes. The total amount of ComEd's revenues securitized cannot
exceed $6.5 billion; approximately one-half of that amount can be issued in
the twelve-month period commencing on August 1, 1998.
As a result of the 1997 Act, 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 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.
Because the 1997 Act is expected ultimately to lead to market-based pricing
of electric generation services, ComEd discontinued SFAS No. 71 regulatory
accounting practices for the generation portion of its business in December
1997. ComEd 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 were written off in the fourth quarter of 1997, resulting in a
charge of $810 million (after-tax) or $3.75 per common share. These costs
relate principally to previously incurred costs originally expected to be
collected through future
34
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
revenues, including income tax benefits previously flowed through to
customers, deferred carrying charges on the Byron Unit 2 and Braidwood Units 1
and 2 nuclear generating plants, generation-related unamortized loss on
reacquired debt and other miscellaneous generation-related costs. The
regulatory asset for the unrecovered nuclear decommissioning costs of
currently retired nuclear plants was not written off, as the 1997 Act provides
for the ongoing recovery of decommissioning costs through regulated rates. See
"Regulatory Assets and Liabilities" and "Depreciation and Decommissioning" in
Note 1 of Notes to Financial Statements.
Pursuant to an option contained in the 1997 Act, ComEd filed a tariff on
December 16, 1997 to eliminate its FAC as of January 1, 1997. Under ComEd's
regulated rates, the FAC provided 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.
Elimination of the FAC requires ComEd to refund to customers any net FAC
charges billed from January 1, 1997 through December 31, 1997. Such FAC
charges were $25 million (after-tax) or $0.12 per common share. These costs,
as well as deferred underrecovered energy costs of $19 million (after-tax) or
$0.08 per common share which ComEd would have been entitled to recover if the
FAC had remained in effect, were recorded as a reduction to operating results
in 1997.
Additionally, elimination of the FAC and a transition to market-based
pricing for generation-related costs required 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 resulted in a charge of $60 million (after-tax) or $0.28 per
common share in December 1997.
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of, which was adopted on January 1, 1996,
established accounting standards for the impairment of long-lived assets,
i.e., determining whether the costs of such assets are recoverable through
future revenues. SFAS No. 121 also requires that regulatory assets, which are
no longer probable of recovery through future revenue, be charged to
operations. ComEd evaluated whether the recoverability of the costs of its
generating stations has been impaired as defined in SFAS No. 121. 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. Notwithstanding the retirement and write-off of Zion
Station, as discussed in Note 5, ComEd has concluded, as a result of these
studies, that impairment, as defined in SFAS No. 121, does not currently exist
and that asset write downs are not 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 additional generating plants prior to expected
retirement dates, further write-offs will be required.
(3) CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE
ComEd changed its accounting method for revenue recognition to record
revenues associated with service which has been provided to customers but has
not yet been billed at the end of each accounting period, retroactive to
January 1, 1997. This change in accounting method increased 1997 operating
results by $170 million (after-tax) or $0.79 per common share, consisting of a
one-time cumulative effect of the change for years prior to 1997 of $197
million (after-tax) or $0.91 per common share, less the impact of the change
on 1997 results of $27 million (after-tax) or $0.12 per common
35
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
share. The following pro forma information reflects the financial results for
1997, 1996 and 1995 as if the new accounting method had been used in such
periods (unaudited):
<TABLE>
<CAPTION>
1997 1996 1995
----------- -------- --------
(THOUSANDS EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Net Income (Loss) Before Extraordinary Items and
Cumulative Effect of Change in Accounting Prin-
ciple.......................................... $ (239,215) $698,229 $682,688
Earnings (Loss) Per Common Share Before Extraor-
dinary Items and Cumulative Effect of Change in
Accounting Principle........................... $ (1.10) $ 3.24 $ 3.18
Net Income (Loss)............................... $(1,049,550) $698,229 $662,666
Earnings (Loss) Per Common Share................ $ (4.85) $ 3.24 $ 3.09
</TABLE>
(4) RATE MATTERS
In January 1995, the ICC issued its Rate Order in the proceedings relating
to ComEd's February 1994 rate increase request. The Rate Order provided, among
other things, for an increase in ComEd's total revenues of approximately $302
million (excluding add-on revenue taxes) on an annual basis. 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. The Rate Order was appealed by intervenors and ComEd to the Illinois
Appellate Court, which issued a decision on May 30, 1997 affirming the Rate
Order in all respects with the exception of two issues, which it remanded to
the ICC for the purpose of providing further analysis. Those issues relate to:
(i) the manner in which certain costs are recovered and which customers should
pay those costs, and (ii) the proper rate of return on common equity for
ComEd. ComEd believes that the ICC can satisfy the Appellate Court's remand
directions on the basis of the existing record from the ICC proceedings which
led to the Rate Order. The Appellate Court's decision was not appealed and the
matter was returned to the ICC, where a decision is expected early in the
second quarter of 1998.
With respect to the first issue remanded to the ICC, ComEd does not believe
it will have any effect on the overall level of rates. With respect to the
rate of return on common equity issue, the ICC had determined in the Rate
Order that ComEd's cost of common equity was 12.28%. Intervenors had submitted
testimony recommending a return on common equity of 11.50%. The Appellate
Court decision requires the ICC to clarify the basis for certain of its
findings relating to its rejection of the intervenors' recommendation and to
analyze further how it arrived at its conclusions. The Appellate Court stated
that after reanalyzing these bases the ICC can determine whether or not the
cost of common equity determination it adopted should still be followed. Each
tenth of one percent change in the rate of return on common equity has
approximately an $8 million effect on the level of annual revenues. The
Appellate Court's decision does not have any immediate effect on ComEd's rates
or require any refunds. In connection with the initiation of the appeal, ComEd
committed to make refunds "in the event that a final, non-appealable order is
entered reversing the ICC's Rate Order." Revenues of approximately $195
million would be subject to refund if the ICC were to adopt the lower rate of
return on common equity recommended by intervenors. An ICC Hearing Examiner
issued a proposed order in January 1998, which if adopted by the ICC, would
uphold the Rate Order and the associated $302 million revenue increase on an
annual basis.
ComEd's costs increased by $30 million in 1996 (before income tax effects)
for an increase in depreciation charges on its nuclear generating units
related to its additional depreciation initiative in 1996. See Note 1 under
"Depreciation and Decommissioning" for information concerning additional
depreciation charges related to ComEd's steam generators at Byron Unit 1 and
Braidwood Unit 1.
See Note 2 for information regarding the 1997 Act.
36
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(5) CLOSURE AND SALE OF PLANTS
On January 14, 1998, the Boards of Directors of Unicom and ComEd authorized
the permanent cessation of nuclear generation operations and retirement of
facilities at ComEd's 2,080 megawatt Zion nuclear generating station. Such
retirement resulted in a charge for 1997 of $523 million (after-tax) or $2.42
per common share. The decision to close Zion Station was a result of an
ongoing analysis, which ComEd performed regarding the economic value of its
generating assets in light of the expected changes in the manner in which
electric energy is marketed and sold. The passage of the 1997 Act provided a
clearer basis for evaluating the costs and benefits of alternative courses of
action. In reaching the decision to cease nuclear generation operations at
Zion Station, the Boards also considered the significant uncertainty
associated with continued operation of the station due to the degradation of
the steam generators, and the expected operating costs associated with
continued station operation.
ComEd's fourth quarter 1997 financial results reflected a charge of $406
million (after-tax) representing the undepreciated costs of Zion Station
(excluding the portion which will remain in use to provide voltage support),
materials and supplies inventories, and nuclear fuel inventories. In addition,
as required by GAAP, a liability for future closing costs associated with the
retirement of Zion Station, excluding severance costs, was recorded resulting
in a charge of $117 million (after-tax) in the fourth quarter of 1997.
In April 1996, ComEd announced that it had finalized agreements to sell 2 of
its coal-fired generating stations, representing 1,600 megawatts of generating
capacity. Under the agreements, State Line and Kincaid stations are expected
to be sold for a total of $250 million, which approximates the book value of
the stations. The net proceeds are expected to be approximately $200 million
(after-tax), which will be used to retire or redeem existing debt. Under the
terms of the sales, ComEd will enter into exclusive 15-year purchased power
agreements for the output of the plants. On March 31, 1997, the ICC issued an
order approving the agreements. A subsequent appeal has been dropped by the
intervening parties. The sale of State Line Station for its approximate book
value was finalized in December 1997. The net proceeds of the sale, after
income tax effects and closing costs, were approximately $56 million. The
Kincaid Station sale is expected to be finalized during the first quarter of
1998.
(6) AUTHORIZED SHARES AND VOTING RIGHTS OF CAPITAL STOCK
At December 31, 1997, Unicom's authorized shares consisted of 400,000,000
shares of common stock. The authorized shares of ComEd preferred and
preference stocks at December 31, 1997 were: preference stock--22,368,560
shares; $1.425 convertible preferred stock--65,912 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.
Pursuant to a plan adopted by the Unicom Board of Directors on February 2,
1998, each share of Unicom's common stock carries the right (referred to
herein as a "Right") to purchase one-thousandth of one share of Unicom's
common stock at a purchase price of $100 per whole share of common stock,
subject to adjustment. The Rights are tradable only with Unicom's common stock
until they become exercisable. The Rights become exercisable upon the earlier
of ten days following a
37
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
public announcement that a person (an "Acquiring Person") has acquired 15% or
more of Unicom's outstanding common stock or ten business days (or such later
date as may be determined by action of the Board of Directors) following the
commencement of a tender or exchange offer which, if consummated, would result
in a person or group becoming an Acquiring Person. The Rights are subject to
redemption by Unicom at a price of $.01 per Right, subject to certain
limitations, and will expire on February 2, 2008. If a person or group becomes
an Acquiring Person, each holder of a Right will thereafter have the right to
receive, upon exercise, Unicom common stock at a 50% discount from the then
current market price. If Unicom is acquired in a merger or other business
combination transaction in which Unicom is not the survivor, or 50% or more of
Unicom's assets or earning power is sold or transferred, each holder of a
Right shall then have the right to receive, upon exercise, common stock of the
acquiring company at a 50% discount from the then current market price of such
common stock. Rights held by an Acquiring Person become void upon the
occurrence of such events.
(7) COMMON EQUITY
At December 31, 1997, shares of Unicom common stock were reserved for the
following purposes:
<TABLE>
<S> <C>
Long-Term Incentive Plan........................................ 3,177,566
Employee Stock Purchase Plan.................................... 507,567
Exchange for ComEd common stock not held by Unicom.............. 97,953
1996 Directors' Fee Plan........................................ 180,713
---------
3,963,799
=========
</TABLE>
Common stock for the years ended 1997, 1996 and 1995 was issued as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Shares of Common Stock Issued:
Long-Term Incentive Plan.......................... 208,104 132,579 481,751
Employee Stock Purchase Plan...................... 196,003 196,513 217,080
Employee Savings and Investment Plan.............. 274,203 339,100 217,100
Exchange for ComEd common stock not held by
Unicom........................................... 12,370 25,323 --
1996 Directors' Fee Plan.......................... 14,175 5,112 --
------- ------- -------
704,855 698,627 915,931
======= ======= =======
<CAPTION>
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Amount of Common Stock Issued:
Total issued...................................... $15,768 $17,733 $25,412
Held by trustee for Unicom Stock Bonus Deferral
Plan............................................. (2,476) (4,300) --
Other............................................. 10 38 95
------- ------- -------
$13,302 $13,471 $25,507
======= ======= =======
</TABLE>
At December 31, 1997 and 1996, 76,868 and 78,045 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.
Unicom's retained earnings account had a deficit balance of $21.2 million at
December 31, 1997. As of December 31, 1997, $331 million of retained earnings
has been appropriated for future dividend payments.
38
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(8) STOCK OPTION AWARDS/EMPLOYEE STOCK PURCHASE PLAN
Unicom has a nonqualified stock option awards program under its Long-Term
Incentive Plan. The stock option awards program was adopted by Unicom in July
1996 to reward valued employees responsible for, or contributing to, the
management, growth and profitability of Unicom and its subsidiaries. The stock
options granted will expire ten years from their grant date. One-third of the
shares subject to the options vest on each of the first three anniversaries of
the option grant date. In addition, the stock options will become fully vested
immediately if the holder dies, retires, is terminated by the Company other
than for cause or qualifies for long-term disability and will also vest in
full upon a change in control.
Stock options transactions for the years 1997 and 1996 are summarized as
follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
OPTIONS PRICE
--------- --------
<S> <C> <C>
Outstanding at the beginning of 1996........................ -- $ --
Granted during the year..................................... 1,205,500 25.500
Expired/cancelled during the year........................... (17,500) 25.500
---------
Outstanding as of December 31, 1996......................... 1,188,000 25.500
Granted during the year..................................... 1,339,350 22.313
Exercised during the year................................... (23,423) 25.500
Expired/cancelled during the year........................... (213,549) 23.649
---------
Outstanding as of December 31, 1997......................... 2,290,378 23.809
=========
</TABLE>
Of the stock options outstanding at December 31, 1997, 426,174 have vested
at a weighted average price of $25.455.
The fair value of each stock option is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions:
<TABLE>
<CAPTION>
STOCK OPTION
GRANT DATE
----------------
1997 1996
------- -------
<S> <C> <C>
Expected option life........................................ 7 years 7 years
Dividend yield.............................................. 7.20% 6.30%
Expected volatility......................................... 22.29% 20.98%
Risk-free interest rate..................................... 6.25% 6.64%
</TABLE>
The estimated fair value for each stock option granted in 1997 and 1996 was
$2.79 and $3.74, respectively.
The ESPP allows employees to purchase Unicom common stock at a 10% discount
from market value. Substantially all of the employees of Unicom, ComEd and
certain subsidiaries are eligible to participate in the ESPP. Unicom issued
196,003, 196,513 and 217,080 shares of common stock in 1997, 1996 and 1995,
respectively, under the ESPP at a weighted average annual purchase price of
$19.15, $23.52 and $25.34, respectively.
Unicom has adopted the disclosure-only provisions of SFAS No. 123. For
financial reporting purposes, Unicom has adopted APB No. 25 and thus no
compensation cost has been recognized for the stock option awards program or
ESPP. If Unicom had recorded compensation expense for the stock options
granted and the shares of common stock issued under the ESPP in accordance
with SFAS No. 123 using the fair value based method of accounting, the effect
on operating results and EPS would have been immaterial.
39
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(9) COMED PREFERRED AND PREFERENCE STOCKS WITHOUT MANDATORY REDEMPTION
REQUIREMENTS
No shares of ComEd preferred or preference stocks without mandatory
redemption requirements were issued or redeemed during 1997, 1996 and 1995.
The series of ComEd preference stock without mandatory redemption requirements
outstanding at December 31, 1997 are summarized as follows:
<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.
(10) COMED PREFERENCE STOCK SUBJECT TO MANDATORY REDEMPTION REQUIREMENTS
During 1997, 1996 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 December 31,
1997 are summarized as follows:
<TABLE>
<CAPTION>
SHARES AGGREGATE
SERIES OUTSTANDING STATED VALUE OPTIONAL REDEMPTION PRICE(1)
- -------------- ----------- ------------ -----------------------------------------------
(THOUSANDS
OF DOLLARS)
<S> <C> <C> <C>
$8.20 178,560 $ 17,856 $101
$8.40 Series B 300,000 29,798 $101
$8.85 225,000 22,500 $103 through July 31, 1998; and $101 thereafter
$9.25 525,000 52,500 $103 through July 31, 1999; and $101 thereafter
$9.00 130,000 12,887 Non-callable
$6.875 700,000 69,475 Non-callable
--------- --------
2,058,560 $205,016
========= ========
</TABLE>
- --------
(1) Per share plus accrued and unpaid dividends, if any.
40
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
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
ANNUAL SINKING FUND FUND INVOLUNTARY
SERIES 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(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.
Annual remaining sinking fund requirements through 2002 on ComEd preference
stock outstanding at December 31, 1997 will aggregate $31 million in 1998, $18
million in 1999, $88 million in 2000 and $18 million in each of 2001 and 2002.
During each of 1997 and 1996 438,215 shares and during 1995 178,215 shares 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.
(11) COMED-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARY
TRUSTS HOLDING SOLELY COMED'S SUBORDINATED DEBT SECURITIES
In September 1995, ComEd Financing I, a wholly-owned subsidiary trust of
ComEd, issued 8,000,000 of its 8.48% ComEd-obligated mandatorily redeemable
preferred securities. The sole asset of ComEd Financing I is $206.2 million
principal amount of ComEd's 8.48% subordinated deferrable interest notes due
September 30, 2035. In January 1997, ComEd Financing II, a wholly-owned
subsidiary trust of ComEd, issued 150,000 of its 8.50% ComEd-obligated
mandatorily redeemable capital securities. The sole asset of ComEd Financing
II is $154.6 million principal amount of ComEd's 8.50% subordinated deferrable
interest debentures due January 15, 2027. There is a full and unconditional
guarantee by ComEd of the Trusts' obligations under the securities issued by
the Trusts. 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. Similarly, ComEd has the right to defer payments of interest on the
subordinated deferrable interest debentures by extending the interest payment
period, at any time, for up to 10 consecutive semi-annual periods. If interest
payments on the subordinated deferrable interest notes or debentures 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, and with
respect to the subordinate deferrable interest debentures, on or after January
15, 2007, or at any time in the event of certain income tax
41
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
circumstances. If the subordinated deferrable interest notes or debentures are
redeemed, the Trusts must redeem preferred securities having an aggregate
liquidation amount equal to the aggregate principal amount of the subordinated
deferrable interest notes or debentures so redeemed. In the event of the
dissolution, winding up or termination of the Trusts, the holders of the
preferred securities will be entitled to receive, for each preferred security,
a liquidation amount of $25 for the securities of ComEd Financing I and $1,000
for the securities of ComEd Financing II, 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 or debentures are distributed to the holders of the preferred
securities.
(12) LONG-TERM DEBT
Sinking fund requirements and scheduled maturities remaining through 2002
for ComEd's first mortgage bonds, sinking fund debentures and other long-term
debt outstanding at December 31, 1997, after deducting sinking fund debentures
reacquired for satisfaction of future sinking fund requirements, are
summarized as follows: 1998--$503 million; 1999--$150 million; 2000--$462
million; 2001--$108 million; and 2002--$305 million. Unicom Enterprises' note
payable to bank of $160 million will mature in 1999.
At December 31, 1997, ComEd's outstanding first mortgage bonds maturing
through 2002 were as follows:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
SERIES ----------------------
(THOUSANDS OF DOLLARS)
<S> <C>
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
9 3/8% due February 15, 2000....................... 125,000
6 1/2% due April 15, 2000.......................... 230,000
6 3/8% due July 15, 2000........................... 100,000
7 1/2% due January 1, 2001......................... 100,000
7 3/8% due September 15, 2002...................... 200,000
----------
$1,060,000
==========
</TABLE>
42
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
Other long-term debt outstanding at December 31, 1997 is summarized as
follows:
<TABLE>
<CAPTION>
DEBT PRINCIPAL
SECURITY AMOUNT INTEREST RATE
- ------------ ---------- ------------------------------------------------------
(THOUSANDS
OF
DOLLARS)
<S> <C> <C>
Unicom--
Loans Pay-
able:
Loan due $ 7,978
January
1, 2003 Interest rate of 8.31%
Loan due
January
1, 2004 8,951 Interest rate of 8.44%
----------
$ 16,929
----------
ComEd--
Notes:
Medium
Term
Notes,
Series
1N due
various
dates
through
April 1,
1998 $ 35,500 Interest rates ranging from 9.52% to 9.65%
Medium
Term
Notes,
Series
3N due
various
dates
through
October
15, 2004 296,000 Interest rates ranging from 9.00% to 9.20%
Notes due
January
15, 2004 150,000 Interest rate of 7.375%
Notes due
October
15, 2005 235,000 Interest rate of 6.40%
Notes due
January
15, 2007 150,000 Interest rate of 7.625%
----------
$ 866,500
----------
Long-Term
Note Pay-
able to
Bank due
June 1,
1998 $ 150,000 Prevailing interest rate of 6.53% at December 31, 1997
----------
Purchase
Contract
Obligation
due April
30, 2005 $ 389 Interest rate of 3.00%
----------
Total ComEd $1,016,889
----------
Unicom En-
terprises--
Long-Term
Note Pay-
able to
Bank due
November
15, 1999 $ 160,000 Prevailing interest rate of 6.95% at December 31, 1997
----------
Total Unicom $1,193,818
==========
</TABLE>
Long-term debt maturing within one year has been included in current
liabilities.
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.
ComEd recorded an extraordinary loss of $33 million in the fourth quarter of
1995 related to the early redemption of $645 million of long-term debt which
resulted in a charge of $20 million, after reflecting income tax effects of
$13 million, or $0.09 per common share.
(13) LINES OF CREDIT
ComEd had total bank lines of credit of $766 million and unused bank lines
of credit of $758 million at December 31, 1997. Of that amount, $758 million
(of which $146 million expires on September 27, 1998, $27 million expires in
equal quarterly installments commencing on March 31, 1998 and ending on
September 30, 1998 and $585 million expires in equal quarterly installments
commencing on March 31, 1998 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 the credit rating of
ComEd's outstanding first mortgage bonds or on a prime interest rate. Amounts
under the remaining lines of credit may be borrowed at prevailing prime
interest rates on unsecured
43
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
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
the unused portion of such lines of credit.
Unicom Enterprises has a $200 million credit facility which will expire on
November 15, 1999, of which $40 million was unused as of December 31, 1997.
The credit facility can be used by Unicom Enterprises to finance investments
in unregulated businesses and projects, including UT Holdings and Unicom
Energy Services, and for general corporate purposes. The credit facility is
guaranteed by Unicom and includes certain covenants with respect to Unicom 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.
Unicom Enterprises is obligated to pay commitment fees with respect to the
unused portion of such lines of credit.
(14) 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. The DOE advised ComEd in
December 1996 that it anticipated it would be unable to begin acceptance of
spent nuclear fuel by January 1998. It is expected this delivery schedule will
be delayed significantly. 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 $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
on the Consolidated Balance Sheets.
(15) 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 in
part dependent on the treatment authorized under future ComEd ratemaking
proceedings.
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
44
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
decommissioning funds, as determined by the trustee and based on published
market data, as of December 31, 1997 and 1996 was as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
-------------------------------- --------------------------------
UNREALIZED
UNREALIZED GAINS
COST BASIS GAINS FAIR VALUE COST BASIS (LOSSES) FAIR VALUE
---------- ---------- ---------- ---------- ---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Short-term investments.. $ 33,524 $ 2 $ 33,526 $ 32,778 $ 38 $ 32,816
U.S. Government and
Agency issues.......... 170,240 15,882 186,122 251,994 6,885 258,879
Municipal bonds......... 306,104 20,598 326,702 331,936 17,985 349,921
Corporate bonds......... 231,738 4,293 236,031 22,405 (54) 22,351
Common stock............ 667,657 385,851 1,053,508 539,392 201,304 740,696
Other................... 17,300 2,508 19,808 47,462 4,235 51,697
---------- -------- ---------- ---------- -------- ----------
$1,426,563 $429,134 $1,855,697 $1,225,967 $230,393 $1,456,360
========== ======== ========== ========== ======== ==========
</TABLE>
At December 31, 1997, 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....................................... $ 33,699 $ 33,702
1 through 5 years................................... 162,558 166,427
5 through 10 years.................................. 219,201 232,508
Over 10 years....................................... 335,538 359,411
</TABLE>
The net earnings of the nuclear decommissioning funds, which are recorded as
increases to the accumulated provision for depreciation, for the years 1997,
1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Gross proceeds from sales of securities. $ 2,163,522 $ 2,335,974 $ 2,598,889
Less cost based on specific identifica-
tion................................... (2,088,300) (2,300,038) (2,581,714)
----------- ----------- -----------
Realized gains on sales of securities... $ 75,222 $ 35,936 $ 17,175
Other realized fund earnings net of ex-
penses................................. 39,123 33,008 46,294
----------- ----------- -----------
Total realized net earnings of the
funds.................................. $ 114,345 $ 68,944 $ 63,469
Unrealized gains ....................... 198,741 65,516 160,843
----------- ----------- -----------
Total net earnings of the funds........ $ 313,086 $ 134,460 $ 224,312
=========== =========== ===========
</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
Trusts and long-term debt were obtained 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, as of December 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
-------------------------------- --------------------------------
CARRYING UNREALIZED CARRYING UNREALIZED
VALUE LOSSES FAIR VALUE VALUE LOSSES FAIR VALUE
---------- ---------- ---------- ---------- ---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
ComEd preferred and
preference stocks.... $ 712,069 $ 11,970 $ 724,039 $ 755,931 $ 3,948 $ 759,879
ComEd-obligated
mandatorily
redeemable preferred
securities of the
Trusts holding solely
ComEd's subordinated
debt securities...... $ 350,000 $ 21,701 $ 371,701 $ 200,000 $ 1,000 $ 201,000
Long-term debt........ $5,913,942 $380,890 $6,294,832 $6,345,533 $159,818 $6,505,351
</TABLE>
45
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
Long-term notes payable, which are not included in the above table, amounted
to $327 million and $264 million at December 31, 1997 and 1996, respectively.
Such notes, for which interest is paid at fixed and 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
commercial paper and 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, 1997 and 1996; therefore, the carrying value is equal to the fair
value.
(16) PENSION BENEFITS
As of December 31, 1997, ComEd and the Indiana Company had qualified 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. During 1995, these plans were amended to more
closely base retirement benefits on final pay. 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, 1997 and 1996 pension liabilities and related data were determined using
the January 1, 1997 actuarial valuation. Additionally, ComEd maintains a
nonqualified supplemental retirement plan which covers any excess pension
benefits that would be payable to management employees under the qualified
plan but which are limited by the Internal Revenue Code. On January 19, 1998,
the Indiana Company plan was merged into the ComEd pension plan as a result of
the sale of the Indiana Company's State Line Station.
The funded status of these plans, including the supplemental plan, at
December 31, 1997 and 1996 was as follows:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1997 1996
----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Actuarial present value of accumulated pension plan
benefits:
Vested benefit obligation.......................... $(3,472,000) $(3,075,000)
Nonvested benefit obligation....................... (140,000) (118,000)
----------- -----------
Accumulated benefit obligation..................... $(3,612,000) $(3,193,000)
Effect of projected future compensation levels..... (462,000) (386,000)
----------- -----------
Projected benefit obligation....................... $(4,074,000) $(3,579,000)
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 and fixed income
funds .............................................. 3,706,000 3,281,000
----------- -----------
Plan assets less than projected benefit obligation... $ (368,000) $ (298,000)
Unrecognized prior service cost...................... (64,000) (69,000)
Unrecognized transition asset........................ (114,000) (130,000)
Unrecognized net loss................................ 132,000 113,000
----------- -----------
Accrued pension liability.......................... $ (414,000) $ (384,000)
=========== ===========
</TABLE>
The fair value of plan assets excludes $17 million held in grantor trust as
of December 31, 1997 for payment of benefits under the supplemental plan.
46
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
The assumed discount rate was 7.0% and 7.5% at December 31, 1997 and 1996,
respectively, 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 projected unit credit actuarial cost
method and the following actuarial assumptions for the years 1997, 1996 and
1995:
<TABLE>
<CAPTION>
1997 1996 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................ 9.75% 9.75% 9.75%
</TABLE>
The components of pension costs, portions of which were recorded as
components of construction costs, for the years 1997, 1996 and 1995 were as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Service cost............ $ 100,000 $ 93,000 $ 87,000
Interest cost on pro-
jected benefit obliga-
tion................... 261,000 247,000 226,000
Actual return on plan
assets................. (630,000) (421,000) (681,000)
Curtailment gain........ (5,000) -- --
Net amortization and de-
ferral................. 305,000 117,000 419,000
--------- --------- ---------
$ 31,000 $ 36,000 $ 51,000
========= ========= =========
</TABLE>
The curtailment gain for the year 1997 represents the recognition of prior
service costs, the transition asset and the decrease in the projected benefit
obligation related to the sale of State Line Station by the Indiana Company.
In addition, an employee savings and investment plan is available to
eligible employees of ComEd and certain of its and Unicom's subsidiaries.
Under the plan, each participating employee may contribute up to 20% of such
employee's base pay. The participating companies match the first 6% of such
contribution equal to 100% of the first 2% of contributed base salary, 70% of
the next 3% of contributed base salary and 25% of the next 1% of contributed
base salary. The participating companies' contributions were $33 million, $30
million and $25 million for the years 1997, 1996 and 1995, respectively.
(17) POSTRETIREMENT BENEFITS
ComEd and the Indiana Company provide certain postretirement health care,
dental care, vision care and life insurance for retirees and their dependents
and for the surviving dependents of eligible employees and retirees. The
employees become eligible for postretirement benefits when they reach age 55
with 10 years of service. The liability for postretirement benefits is funded
through trust funds based upon actuarially determined contributions that take
into account the amount deductible for income tax purposes. The plan is
contributory, funded jointly by the companies and the participating employees.
The December 31, 1997 and 1996 postretirement benefit liabilities and related
data were determined using the January 1, 1997 actuarial valuations.
Postretirement health care costs for the years 1997, 1996 and 1995 included
$8 million, $4 million and $25 million, respectively, related to voluntary
separation offers to certain employees of ComEd and the Indiana Company.
47
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
The funded status of the plan at December 31, 1997 and 1996 was as follows:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1997 1996
----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Actuarial present value of accumulated postretirement
benefit obligation:
Retirees............................................ $ (573,000) $ (558,000)
Active fully eligible participants.................. (28,000) (28,000)
Other participants.................................. (483,000) (449,000)
----------- -----------
Accumulated benefit obligation...................... $(1,084,000) $(1,035,000)
Fair value of plan assets, invested primarily in S&P
500 common stocks, registered investment companies
and U.S. Government, government agency, municipal
and listed corporate
obligations......................................... 768,000 665,000
----------- -----------
Plan assets less than accumulated postretirement ben-
efit obligation..................................... $ (316,000) $ (370,000)
Unrecognized transition obligation................... 345,000 370,000
Unrecognized prior service cost...................... 52,000 56,000
Unrecognized net gain................................ (406,000) (323,000)
----------- -----------
Accrued liability for postretirement benefits....... $ (325,000) $ (267,000)
=========== ===========
</TABLE>
Different health care cost trends are used for pre-Medicare and post-
Medicare expenses. The pre-Medicare trend rates were 8.5% and 9.0% at December
31, 1997 and 1996, respectively, grading down in 0.5% annual increments and
leveling off at 5.0%. The post-Medicare trend rates were 6.5% and 7.0% at
December 31, 1997 and 1996, respectively, grading down in 0.5% annual
increments to 5.0%. The assumed discount rates were 7.0% and 7.5% at December
31, 1997 and 1996, respectively, which were used to determine the accumulated
benefit obligations. The effect of a 1% increase in the health care cost trend
rate for each future year would increase the accumulated postretirement health
care obligations by approximately $187 million.
The components of postretirement health care costs, portions of which were
recorded as components of construction costs, for the years 1997, 1996 and
1995 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Service cost............................. $ 34,000 $ 32,000 $ 31,000
Interest cost on accumulated benefit ob-
ligation................................ 76,000 73,000 69,000
Actual return on plan assets............. (130,000) (83,000) (137,000)
Amortization of transition obligation.... 22,000 22,000 23,000
Severance plan cost...................... 8,000 4,000 25,000
Other.................................... 60,000 22,000 83,000
--------- -------- ---------
$ 70,000 $ 70,000 $ 94,000
========= ======== =========
</TABLE>
Postretirement benefit costs were determined using the projected unit credit
actuarial cost method. The discount rates used were 7.5% for the years 1997
and 1996 and 8.0% for the year 1995 and the estimated long-term rate of return
of fund assets, net of income tax effects, were 9.40%, 9.38% and 9.32% for the
years 1997, 1996 and 1995, respectively. Pre-Medicare health care cost trend
rates were 13.5% for the first three months of 1995 and 10% for the remainder
of the year, grading down in 0.5% annual increments to 5.0%. Post-Medicare
health care cost trend rates were 11% for the first three months of 1995 and
8% for the remainder of the year, grading down in 0.5% annual increments to
5.0%. The effect of a 1% increase in the health care cost trend rate for each
future year would increase the aggregate of the service and interest cost
components of postretirement benefit costs by approximately $21 million for
1997.
48
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(18) SEPARATION PLAN COSTS
O&M expenses included $39 million, $12 million and $97 million for the years
1997, 1996 and 1995, respectively, for costs related to voluntary separation
offers to certain employees of ComEd and the Indiana Company. Such costs
resulted in charges of $24 million (after-tax) or $0.11 per common share, $7
million (after-tax) or $0.03 per common share and $59 million (after-tax) or
$0.27 per common share for the years 1997, 1996 and 1995, respectively.
(19) INCOME TAXES
The components of the net deferred income tax liability at December 31, 1997
and 1996 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1997 1996
---------- ----------
(THOUSANDS OF
DOLLARS)
<S> <C> <C>
Deferred income tax liabilities:
Accelerated cost recovery and liberalized deprecia-
tion, net of removal costs........................... $4,062,801 $3,514,300
Overheads capitalized................................. 131,509 261,437
Repair allowance...................................... 231,697 228,426
Regulatory assets recoverable through future rates.... 785,354 1,649,037
Deferred income tax assets:
Postretirement benefits............................... (305,242) (269,180)
Unbilled revenues..................................... -- (136,406)
Alternative minimum tax............................... -- (80,159)
Unamortized investment tax credits.................... (206,112) (225,360)
Regulatory liabilities to be settled through future
rates................................................ (698,750) (442,941)
Nuclear plant closure................................. (194,244) --
Other--net............................................ (136,258) (45,071)
---------- ----------
Net deferred income tax liability...................... $3,670,755 $4,454,083
========== ==========
</TABLE>
The $783 million decrease in the net deferred income tax liability from
December 31, 1996 to December 31, 1997 is comprised of $370 million of
deferred income tax benefits reflected in operations, a $315 million decrease
for an adjustment associated with the write-off of the generation-related net
regulatory assets and a $98 million decrease in other regulatory assets net of
regulatory liabilities pertaining to income taxes for the year. 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 years 1997, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Operating income:
Current income taxes.......................... $ 255,277 $328,369 $339,989
Deferred income taxes......................... 62,501 161,176 186,529
Investment tax credits deferred--net.......... (31,015) (33,378) (28,710)
Other (income) and deductions, primarily de-
ferred income taxes in 1997................... (407,624) (7,385) (7,685)
--------- -------- --------
Net income taxes charged (credited) to continu-
ing operations................................ $(120,861) $448,782 $490,123
========= ======== ========
</TABLE>
49
<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 years 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
--------- ---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Net income (loss) before extraordinary items
and cumulative effect of change in
accounting principle....................... $(239,215) $ 666,100 $ 659,533
Net income taxes charged (credited) to
continuing operations...................... (120,861) 448,782 490,123
Provision for dividends on ComEd preferred
and preference stocks...................... 60,486 64,424 69,961
--------- ---------- ----------
Pre-tax income (loss) before extraordinary
items, cumulative effect and provision for
dividends.................................. $(299,590) $1,179,306 $1,219,617
========= ========== ==========
Effective income tax rate................... 40.3% 38.1% 40.2%
========= ========== ==========
</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 years 1997, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Federal income taxes computed at statutory rate. $(104,857) $412,757 $426,866
Equity component of AFUDC which was excluded
from taxable income............................ (8,320) (7,272) (4,595)
Amortization of investment tax credits.......... (53,541) (33,378) (28,710)
State income taxes, net of federal income taxes. (682) 58,387 65,972
Differences between book and tax accounting,
primarily property-related deductions.......... 51,465 14,150 27,534
Other--net...................................... (4,926) 4,138 3,056
--------- -------- --------
Net income taxes charged (credited) to
continuing operations.......................... $(120,861) $448,782 $490,123
========= ======== ========
</TABLE>
The effects of an income tax refund related to prior years were recorded in
1996, resulting in a positive impact of $26 million (after-tax) or $0.12 per
common share.
(20) TAXES, EXCEPT INCOME TAXES
Provisions for taxes, except income taxes, for the years 1997, 1996 and 1995
were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Illinois public utility revenue............... $228,350 $227,062 $229,546
Illinois invested capital..................... 99,503 104,663 106,830
Municipal utility gross receipts.............. 168,094 168,715 167,758
Real estate................................... 151,508 129,770 176,454
Municipal compensation........................ 78,286 78,544 78,602
Other--net.................................... 75,145 74,777 74,107
-------- -------- --------
$800,886 $783,531 $833,297
======== ======== ========
</TABLE>
ComEd's real estate taxes in 1996 reflect a credit of $23 million which
related to the year 1995.
(21) 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/bank borrowings and $400
million of intermediate term notes, to finance the transactions. The
50
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
commercial paper/bank borrowing portion of $300 million will expire on
November 23, 1999. With respect to the intermediate term notes, $74 million
expires on November 23, 1998, and an additional portion each November 23
thereafter through November 23, 2003. At December 31, 1997, ComEd's obligation
to the lessor for leased nuclear fuel amounted to approximately $679 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 December 31, 1997
for capital leases are estimated to aggregate $789 million, including $268
million in 1998, $167 million in 1999, $125 million in 2000, $81 million in
2001, $57 million in 2002 and $91 million in 2003-2043. The estimated interest
component of such rental payments aggregates $112 million. The estimated
portions of obligations due within one year under capital leases of $114
million and $174 million at December 31, 1997 and 1996, respectively, are
included in current liabilities on the Consolidated Balance Sheets.
Future minimum rental payments at December 31, 1997 for operating leases are
estimated to aggregate $186 million, including $22 million in 1998, $20
million in 1999, $16 million in 2000, $15 million in 2001, $11 million in 2002
and $102 million in 2003-2024.
(22) 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 and O&M accounts, and provides its own
financing. At December 31, 1997, for its share of ownership in the station,
ComEd had an investment of $669 million in production and transmission plant
in service (before a reduction of $209 million for the related accumulated
provision for depreciation) and $8 million in construction work in progress.
(23) COMMITMENTS AND CONTINGENT LIABILITIES
Purchase commitments, principally related to construction and nuclear fuel,
approximated $304 million at December 31, 1997, comprised of $286 million for
ComEd, $11 million for UT Holdings and $7 million for Unicom Energy Services.
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
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 was a member of NML, established to provide insurance coverage against
property damage to members' nuclear generating facilities. NML has merged into
NEIL as of January 1, 1998. ComEd's obligations and coverages have not been
affected by the merger. 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 $51 million in any policy year, in the event losses exceed
accumulated reserve funds.
51
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
ComEd 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 $22 million and $70
million in the event losses exceed accumulated reserve funds under the
replacement power and property damage coverages, respectively.
The NRC's indemnity for public liability coverage under the Price-Anderson
Act is supported by a mandatory industry-wide program under which owners of
nuclear generating facilities could be assessed in the event of nuclear
incidents. Based on the number of nuclear reactors with operating licenses,
ComEd would currently be subject to a maximum assessment of $1,030 million in
the event of an incident, limited to a maximum of $130 million in any calendar
year.
In addition, ComEd participates in the American Nuclear Insurers Master
Worker Program, which provides coverage for worker tort claims filed for
bodily injury caused by the nuclear energy hazard. This program was modified,
effective January 1, 1998, to provide coverage to all workers whose "nuclear
related employment" began on or after the commencement date of reactor
operations. ComEd will not be liable for a retrospective assessment under this
new policy. However, ComEd is still subject to a maximum retroactive assesment
of up to $36 million in the event losses incurred under the small number of
policies in the old program exceed accumulated reserves.
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 1994, a federal jury returned nominal dollar verdicts on 8
bellwether plaintiffs' claims in these cases, which verdicts were upheld on
appeal. The remaining claims in the 1989 actions have been settled and
dismissed. 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. A case relating to 14 of the
plaintiffs in the 1991 cases has been set for trial in June 1998.
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.
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
52
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
million to $150 million in current-year (1998) dollars. It is expected that
the costs associated with investigation and remediation of former MGP sites
will be incurred over a period not to exceed 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 $25 million has been
included in other noncurrent liabilities on the Consolidated Balance Sheets as
of December 31, 1997 and 1996, 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, 1997 and 1996, a reserve of $8 million has been
included in other noncurrent liabilities on the Consolidated Balance Sheets,
representing ComEd's estimate of the liability associated with cleanup costs
of remediation sites other than former MGP sites. Approximately half of this
reserve relates to anticipated cleanup costs associated with a property
formerly used as a tannery which was purchased by ComEd in 1973. 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.
Final ICC orders have been issued in fuel reconciliation proceedings for
years prior to 1994 and for the year 1995. In 1996, an intervenor filed
testimony in the fuel reconciliation proceeding for 1994 seeking a refund of
approximately $90 million relating to nuclear station performance. The 1997
Act provides that the fuel reconciliation proceedings for 1994 and 1996 must
be concluded by the end of 1998. If refunds are required in these proceedings,
the refunds could have a material effect on results of operations. The 1997
Act also provides that, because ComEd eliminated its FAC effective January 1,
1997, the ICC shall not conduct a fuel reconciliation proceeding for the year
1997 and subsequent years. See Note 2 for information regarding the
elimination of ComEd's FAC.
53
<PAGE>
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONCLUDED
(24) QUARTERLY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
AVERAGE EARNINGS/
NUMBER OF (LOSS)
THREE MONTHS ENDED (1997 NET COMMON PER
RESTATED FOR CHANGE OPERATING OPERATING INCOME/ SHARES COMMON
IN ACCOUNTING PRINCIPLE) REVENUES INCOME (LOSS) OUTSTANDING SHARE
- ------------------------ ---------- --------- ----------- ----------- ---------
(THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
March 31, 1997.......... $1,670,722 $214,912 $ 262,370 216,053 $ 1.21
June 30, 1997........... $1,686,422 $153,128 $ 5,494 216,368 $ 0.03
September 30, 1997...... $2,070,912 $387,283 $ 240,332 216,409 $ 1.11
December 31, 1997....... $1,654,966 $157,080 $(1,361,046) 216,489 $(6.29)
March 31, 1996.......... $1,683,929 $297,526 $ 136,932 215,248 $ 0.64
June 30, 1996........... $1,547,913 $253,086 $ 100,313 215,438 $ 0.47
September 30, 1996...... $2,067,901 $474,894 $ 334,980 215,568 $ 1.55
December 31, 1996....... $1,637,281 $237,802 $ 93,875 215,747 $ 0.44
<CAPTION>
AVERAGE EARNINGS/
NUMBER OF (LOSS)
NET COMMON PER
THREE MONTHS ENDED PRO OPERATING OPERATING INCOME/ SHARES COMMON
FORMA (UNAUDITED)(A) REVENUES INCOME (LOSS) OUTSTANDING SHARE
- ---------------------- ---------- --------- ----------- ----------- ---------
(THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
March 31, 1997.......... $1,670,722 $214,912 $ 65,670 216,053 $ 0.30
June 30, 1997........... $1,686,422 $153,128 $ 5,494 216,368 $ 0.03
September 30, 1997...... $2,070,912 $387,283 $ 240,332 216,409 $ 1.11
December 31, 1997....... $1,654,966 $157,080 $(1,361,046) 216,489 $(6.29)
March 31, 1996.......... $1,636,512 $271,259 $ 110,665 215,248 $ 0.51
June 30, 1996........... $1,599,877 $283,266 $ 130,493 215,438 $ 0.61
September 30, 1996...... $2,045,719 $462,005 $ 322,091 215,568 $ 1.49
December 31, 1996....... $1,709,447 $278,908 $ 134,981 215,747 $ 0.63
</TABLE>
(a) Pro forma quarterly financial information as if the change in accounting
principle had been applied retroactively, excluding the cumulative effect
of a change in accounting principle.
54
<PAGE>
Exhibit (99)-2
Commonwealth Edison Company
Form 10-K, File No. 1-1839
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): JANUARY 30, 1998
COMMONWEALTH EDISON COMPANY
(Exact name of registrant as specified in its charter)
Illinois 1-1839 36-0938600
(State or other (Commission File Number) (IRS Employer
jurisdiction of Identification No.)
incorporation)
37th Floor, 10 South Dearborn Street, 60690-0767
Post Office Box 767, Chicago, Illinois (Zip Code)
(Address of principal executive
offices)
Registrant's telephone number, including area code: (312) 394-4321
<PAGE>
ITEM 5. OTHER EVENTS
The purpose of this Current Report is to file certain financial information
regarding the Registrant (Commonwealth Edison Company) and its subsidiaries.
Such financial information is set forth in the exhibits to this Current
Report.
Exhibits
<TABLE>
<C> <S>
(23) Consent of Independent Public Accountants
(27) Financial Data Schedule of Commonwealth Edison Company
(99) Commonwealth Edison Company and Subsidiary Companies--Certain
Financial Information as of and for the Year Ended December 31,
1997:
--Summary of Selected Consolidated Financial Data
--Cash Dividends Paid Per Share of Common Stock
--1997 Consolidated Revenues and Sales
--Management's Discussion and Analysis of Financial Condition and
Results of Operations
--Report of Independent Public Accountants
--Statements of Consolidated Operations for the years 1997, 1996 and
1995
--Consolidated Balance Sheets--December 31, 1997 and 1996
--Statements of Consolidated Capitalization--December 31, 1997 and
1996
--Statements of Consolidated Retained Earnings (Deficit) for the
years 1997, 1996 and 1995
--Statements of Consolidated Cash Flows for the years 1997, 1996 and
1995
--Notes to Financial Statements
</TABLE>
2
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Commonwealth Edison Company
(Registrant)
By: Robert E. Berdelle
----------------------------------
Robert E. Berdelle
Comptroller
Date: February 18, 1998
3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S> <C>
(23) Consent of Independent Public Accountants
(27) Financial Data Schedule of Commonwealth Edison Company*
(99) Commonwealth Edison Company and Subsidiary Companies--Certain
Financial Information as of and for the Year Ended December 31,
1997:
--Summary of Selected Consolidated Financial Data
--Cash Dividends Paid Per Share of Common Stock
--1997 Consolidated Revenues and Sales
--Management's Discussion and Analysis of Financial Condition
and Results of Operations
--Report of Independent Public Accountants
--Statements of Consolidated Operations for the years 1997, 1996
and 1995
--Consolidated Balance Sheets--December 31, 1997 and 1996
--Statements of Consolidated Capitalization--December 31, 1997
and 1996
--Statements of Consolidated Retained Earnings (Deficit) for the
years 1997, 1996 and 1995
--Statements of Consolidated Cash Flows for the years 1997, 1996
and 1995
--Notes to Financial Statements
</TABLE>
*Previously filed and incorporated by reference to Commonwealth Edison Company's
Form 8-K Current Report dated January 30, 1998
<PAGE>
Exhibit (23)
Commonwealth Edison Company
Form 8-K File No. 1-1839
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated January 30, 1998 on Commonwealth Edison Company
and subsidiary companies consolidated financial statements as of and for the
year ended December 31, 1997, included as an Exhibit to this Form 8-K Current
Report of Commonwealth Edison Company dated January 30, 1998, 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);
(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); (4) prospectus dated June 13, 1997 constituting part of Form S-4
Registration Statement File No. 333-28369 (relating to Company-Obligated
Mandatory Redeemable Preferred Securities of ComEd Financing II); and (5) Form
S-8 Registration Statement File No. 333-33847 (relating to the Commonwealth
Edison Company Excess Benefit Savings Plan). 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, 1997,
1996 and 1995 appearing in Exhibit 99 of this Form 8-K.
ARTHUR ANDERSEN LLP
Chicago, Illinois
February 18, 1998
<PAGE>
Exhibit (99)
Commonwealth Edison Company
Form 8-K File No. 1-1839
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1997 AND 1996
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
FORWARD-LOOKING INFORMATION
Except for historical data, the information contained herein constitutes
forward-looking statements. Forward-looking statements are inherently
uncertain and subject to risks. Such statements should be viewed with caution.
Actual results or experience could differ materially from the forward-looking
statements as a result of many factors. Forward-looking statements in this
report include, but are not limited to: (1) statements regarding expectations
of revenue reductions as a result of the 1997 Act in "Management's Discussion
and Analysis of Financial Condition and Results of Operations," subcaption
"Changes in the Electric Utility Industry" and in Note 2 of Notes to Financial
Statements, (2) statements regarding estimated capital expenditures in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," subcaptions "Liquidity and Capital Resources--Construction
Program," (3) statements regarding the estimated return to service of certain
nuclear generating units and the costs of purchased power in "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
subcaption "Regulation--Nuclear Matters," and "Management's Discussion and
Analysis of Financial Condition and Results of Operations," subcaption
"Results of Operations--Purchased Power," (4) statements regarding the costs
of decommissioning nuclear generating stations in "Management's Discussion and
Analysis of Financial Condition and Results of Operations," subcaption
"Regulation--Nuclear Matters" and in Note 1 of Notes to Financial Statements,
under "Depreciation and Decommissioning", and (5) statements regarding cleanup
costs associated with MGPs and other remediation sites in Note 23 of Notes to
Financial Statements. Management cannot predict the course of future events or
anticipate the interaction of multiple factors beyond management's control and
their effect on revenues, project timing and costs. The statements regarding
revenue reductions are subject to unforeseen developments in the market for
electricity in Illinois resulting from regulatory changes. The statements
regarding estimated capital expenditures, estimated return to service of
nuclear generation units, decommissioning costs and cleanup costs are subject
to changes in the scope of work and manner in which the work is performed and
consequent changes in the timing and level of the projected expenditure, and
are also subject to changes in laws and regulations or their interpretation or
enforcement. Unicom and ComEd make no commitment to disclose any revisions to
the forward-looking statements, or any facts, events or circumstances after
the date hereof that may bear upon forward-looking statements. The statements
regarding the estimated return to service of nuclear generating units are
subject to the concurrence of the NRC with proceeding to power operations.
INDEX
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Definitions.............................................................. 2
Summary of Selected Consolidated Financial Data.......................... 3
Cash Dividends Paid Per Share of Common Stock............................ 3
1997 Consolidated Revenues and Sales..................................... 3
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 4-19
Report of Independent Public Accountants................................. 20
Consolidated Financial Statements--
Statements of Consolidated Operations for the years 1997, 1996 and
1995.................................................................. 21
Consolidated Balance Sheets--December 31, 1997 and 1996................ 22-23
Statements of Consolidated Capitalization--December 31, 1997 and 1996.. 24
Statements of Consolidated Retained Earnings (Deficit) for the years
1997, 1996 and 1995................................................... 25
Statements of Consolidated Cash Flows for the years 1997, 1996 and
1995.................................................................. 26
Notes to Financial Statements.......................................... 27-51
</TABLE>
1
<PAGE>
DEFINITIONS
The following terms are used in this document with the following meanings:
<TABLE>
<CAPTION>
TERM MEANING
- ------------------ ------------------------------------------------------------------
<S> <C>
1997 Act The Illinois Electric Service Customer Choice and Rate Relief Law
of 1997
AFUDC Allowance for funds used during construction
APB Accounting Principles Board
CERCLA Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended
ComEd Commonwealth Edison Company
Cotter Cotter Corporation, a ComEd subsidiary
CTC Non-bypassable "competitive transition charge"
DOE U.S. Department of Energy
EPS Earnings per Share
ESPP Employee Stock Purchase Plan
FAC Fuel adjustment clause
FASB Financial Accounting Standards Board
FERC Federal Energy Regulatory Commission
FERC Order FERC Open Access Order No. 888 issued in April 1996
GAAP Generally Accepted Accounting Principles
ICC Illinois Commerce Commission
Indiana Company Commonwealth Edison Company of Indiana, Inc., a ComEd subsidiary
ISO Independent System Operator
MGP Manufactured gas plant
NEIL Nuclear Electric Insurance Limited
NERC North American Electric Reliability Council
NML Nuclear Mutual Limited
NRC Nuclear Regulatory Commission
O&M Operation and maintenance
Rate Order ICC rate order issued in January 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
S&P Standard & Poor's
Trusts ComEd Financing I and ComEd Financing II, ComEd subsidiaries
Trust Securities Company-obligated mandatorily redeemable preferred securities of
subsidiary trusts holding solely the Company's subordinated debt
securities
Unicom Unicom Corporation
Unicom Enterprises Unicom Enterprises Inc., a Unicom subsidiary
U.S. EPA U.S. Environmental Protection Agency
</TABLE>
2
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
SUMMARY OF SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
(MILLIONS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Electric operating
revenues................. $ 7,073 $ 6,935 $ 6,910 $ 6,278 $ 5,260
Net income (loss)......... $ (774)(1) $ 743 $ 717(2) $ 424 $ 112(4)
Net income (loss) on
common stock............. $ (834)(1) $ 679 $ 647(2) $ 359 $ 46(4)
Cash dividends declared
per common share......... $ 1.60 $ 1.60 $ 1.60 $ 1.60(3) $ 1.60
Total assets (at end of
year).................... $22,458 $23,217 $23,119 $23,076 $24,380
Long-term obligations at
end of year excluding
current portion:
Long-term debt,
preference stock and
preferred securities
subject to mandatory
redemption requirements. $ 6,087 $ 6,376 $ 6,950 $ 7,745 $ 7,861
Accrued spent nuclear
fuel disposal fee and
related interest........ $ 693 $ 657 $ 624 $ 590 $ 567
Capital lease
obligations............. $ 438 $ 475 $ 374 $ 431 $ 321
Other long-term
obligations............. $ 3,177 $ 1,983 $ 1,819 $ 1,754 $ 1,718
</TABLE>
- --------
(1) Includes an extraordinary loss for the write-off of generation-related net
regulatory assets of $810 million (after-tax), the loss on the early
retirement of Zion nuclear generating station of $523 million (after-tax),
and the positive impact of a cumulative effect of a change in accounting
principle for revenue recognition of $197 million (after-tax).
(2) Includes an extraordinary loss related to the early redemption of long-
term debt of $20 million (after-tax).
(3) Excludes a special dividend (consisting of $40 million cash and the common
stock of Unicom Enterprises) effected on September 1, 1994 in connection
with the holding company corporate restructuring.
(4) Includes the positive impact of a cumulative effect of a change in
accounting for income taxes of $10 million (after-tax).
CASH DIVIDENDS PAID PER SHARE OF COMMON STOCK
<TABLE>
<CAPTION>
1997 (BY QUARTERS) 1996 (BY QUARTERS)
------------------------- -------------------------
FOURTH THIRD SECOND FIRST FOURTH THIRD SECOND FIRST
------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash dividends paid......... 40c 40c 40c 40c 40c 40c 40c 40c
</TABLE>
1997 CONSOLIDATED REVENUES AND SALES
<TABLE>
<CAPTION>
ELECTRIC % %
OPERATING INCREASE KILOWATTHOUR INCREASE/ %
REVENUES OVER SALES (DECREASE) INCREASE
(THOUSANDS) 1996 (MILLIONS) OVER 1996 CUSTOMERS OVER 1996
----------- -------- ------------ ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Residential............. $2,552,742 0.4% 22,151 (0.7)% 3,123,364 0.7%
Small commercial and
industrial............. 2,153,113 1.9 25,860 2.9 291,143 0.5
Large commercial and
industrial............. 1,467,574 1.5 24,074 0.7 1,566 1.0
Public authorities...... 505,907 0.6 7,322 (0.2) 12,180 0.3
Electric railroads...... 29,785 0.5 418 (1.4) 2 --
---------- ------ ---------
Ultimate consumers...... $6,709,121 1.1 79,825 0.9 3,428,255 0.7
Provision for revenue
refunds................ (45,470) 100.0 -- -- -- --
---------- ------ ---------
Net ultimate consumers.. $6,663,651 0.4 79,825 0.9 3,428,255 0.7
Sales for resale........ 336,480 43.2 15,679 28.7 51 15.9
Other revenues.......... 72,957 11.3 -- -- -- --
---------- ------ ---------
Total.................. $7,073,088 2.0 95,504 4.6 3,428,306 0.7
========== ====== =========
</TABLE>
3
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CHANGES IN THE ELECTRIC UTILITY INDUSTRY
Unicom and its predominant business, electric energy generation,
transmission and distribution, are in a period of fundamental change in the
manner in which customers obtain, and energy suppliers provide, energy
services. These changes are attributable to changes in technology, the
relaxation of regulatory barriers to utilities' respective service territories
as well as efforts to change the manner in which electric utilities are
regulated. Federal law and regulations have been amended to provide for open
transmission system access, and various states are considering, or have
adopted, new regulatory structures to allow access by some or all customers to
energy suppliers in addition to the local utility.
Electric Utility Industry. The electric utility industry has historically
consisted of vertically integrated companies which combine generation,
transmission and distribution assets; serve customers within relatively
defined service territories; and operate under extensive regulation with
respect to rates, operations and other matters. Utilities have operated under
a regulatory compact with the state, with a statutory obligation to serve all
of the electricity needs within their service territory in a nondiscriminatory
manner. Historically, investment and operating decisions have been made based
upon the utilities' respective assessment of the current and projected needs
of their customers. In view of this obligation, regulation has focused on
investment and operating costs, and rates have been based on a recovery of
some or all of such prudently incurred costs plus a return on invested
capital. Such rate regulation, and the ability of utilities to recover
investment and other costs through rates, have provided the basis for
recording certain costs as regulatory assets. These assets represent costs
which are allocated over future periods reflecting related regulatory
treatment, rather than expensed in the current period.
The 1997 Act. On December 16, 1997, the Governor of Illinois signed into law
the 1997 Act, which established a phased-process to introduce competition into
the electric industry in Illinois under a less regulated structure. The 1997
Act, as it applies to ComEd, 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
15% residential base rate reduction, commencing on August 1, 1998, is expected
to reduce ComEd's operating revenues by approximately $160 million and $375
million in 1998 and 1999, respectively, compared to 1997 rate levels. ComEd is
engaged in certain pricing experiments contemplated by the 1997 Act, which are
expected to reduce ComEd's operating revenues by approximately $30 million and
$60 million in 1998 and 1999, respectively, compared to 1997 rate levels,
notwithstanding the effects of customer growth.
The 1997 Act also provides for the collection of a CTC from customers who
choose another electric service provider during a transition period that
extends through 2006, and can be extended through 2008 with ICC approval if
certain factors are met. The CTC will be established in accordance with a
formula defined in the 1997 Act. The CTC, which will be applied on a cents per
kilowatthour basis, considers the revenue which would have been collected from
a customer under tariffed rates, reduced by 1) the revenue the utility will
receive for providing delivery services to the customer, 2) the market price
for electricity and 3) a defined mitigation factor which represents the
utility's opportunity to develop new revenue sources and achieve costs
savings.
Notwithstanding these rate reductions, and subject to certain earnings
tests, a rate freeze will generally be in effect until at least January 1,
2005. During this period utilities may reorganize, sell or assign assets,
retire or remove plants from service, and accelerate depreciation or
amortization of
4
<PAGE>
assets with limited ICC authority. Under the earnings provision of the 1997
Act, if the earned return on common equity of a utility during this period
exceeds an established threshold, a portion of the excess earnings must be
refunded to customers. A utility may request a rate increase during the rate
freeze period when necessary to ensure the utility's financial viability, but
not before January 1, 2000.
Under the 1997 Act, utilities are required to continue to offer delivery
services, including the transmission and distribution of electric energy, such
that customers who select an alternative energy supplier can receive electric
energy from that supplier using existing transmission and distribution
facilities. Such services will continue to be offered under cost-based
regulated rates. The 1997 Act also requires utilities to establish or join an
ISO that will independently manage and control utility transmission systems.
Additionally, the 1997 Act includes the option to eliminate the FAC, the
leveling of certain regulatory requirements to permit operational flexibility,
the leveling of certain regulatory and tax provisions as applied to various
electric suppliers and a new more stringent liability standard applicable to
ComEd in the event of a major outage.
The 1997 Act also allows ComEd to unbundle a portion of its future revenues,
including tariffed and contract rates and CTC revenues, and issue securities
backed by these revenues. The proceeds from such security issuances must
generally be used to refinance outstanding debt or equity or for certain other
limited purposes. The total amount of ComEd's revenues securitized cannot
exceed $6.5 billion; approximately one-half of that amount can be issued in
the twelve-month period commencing on August 1, 1998.
As a result of the 1997 Act, 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 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 costs control efforts and developing new sources of revenue.
Accounting Effects Related to the 1997 Act. ComEd's financial statements
reflect the application of 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 GAAP for non-regulated entities.
Because the 1997 Act is expected ultimately to lead to market-based pricing
of electric generation services, ComEd discontinued SFAS No. 71 regulatory
accounting practices for the generation portion of its business in December
1997. ComEd 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 were written off in the fourth quarter of 1997, resulting in a
charge of $810 million (after-tax). 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 carrying charges on Byron Unit 2 and Braidwood Units 1 and
2 nuclear generating plants, generation-related unamortized loss on reacquired
debt and other miscellaneous generation-related costs. The regulatory asset
for the unrecovered nuclear decommissioning costs of currently retired nuclear
plants was not written off, as the 1997 Act provides for the ongoing recovery
of decommissioning costs through regulated rates. See "Regulatory Assets and
Liabilities" and "Depreciation and Decommissioning" in Note 1 of Notes to
Financial Statements.
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 for 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
5
<PAGE>
costs of its generating assets. Notwithstanding the retirement and write-off
of Zion Station, as discussed below, ComEd has concluded, as a result of these
studies, that impairment, as defined in SFAS No. 121, does not currently exist
and that asset write downs are not 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 additional generating plants prior to expected
retirement dates, further write-offs will be required.
Pursuant to an option contained in the 1997 Act, ComEd filed a tariff on
December 16, 1997 to eliminate its FAC as of January 1, 1997. Under ComEd's
current regulated rates, the FAC provided 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. Elimination of the FAC requires ComEd to refund to customers any net
FAC charges billed from January 1, 1997 through December 31, 1997. Such FAC
charges were $25 million (after-tax). These costs, as well as deferred
underrecovered energy costs of $19 million (after-tax) which ComEd would have
been entitled to recover if the FAC had remained in effect, were recorded as a
reduction to operating results in 1997. Additionally, the elimination of the
FAC and a transition to market-based pricing for generation-related costs
required 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 resulted in a charge in
December 1997 of $60 million (after-tax).
Federal Regulation. The Federal Energy Policy Act of 1992, among other
things, empowered FERC to introduce a greater level of competition into the
wholesale marketplace for electric energy. In April 1996, the FERC Order was
issued requiring utilities to file open access tariffs with regard to their
transmission systems. These tariffs set forth the terms, including prices,
under which other parties and the utility's wholesale marketing function may
use the utility's transmission system. ComEd has an approved open access
tariff with the FERC. The FERC Order requires the separation of the
transmission operations and wholesale marketing functions so as to ensure that
unaffiliated third parties have access to the same information as to system
availability and other requirements. The FERC Order further requires utilities
to operate an electronic bulletin board to make transmission price and access
data available to all potential users. A key feature of the FERC Order is that
it contemplates full recovery of a utility's costs "stranded" by competition.
These costs are "stranded" or "strandable" to the extent market-based rates
would be insufficient to allow for their full recovery. To recover stranded
costs, the utility must show that it had a reasonable expectation that it
would continue to serve the customer in question under its regulatory compact.
In addition, some governmental entities, such as cities, may elect to
"municipalize" a utility's distribution facilities through condemnation
proceedings. Such municipalities would then be able to purchase electric power
on a wholesale basis and resell it to customers over the newly acquired
facilities. The FERC Order provides for the recovery of a utility's investment
stranded by municipalization.
ComEd's Response to Regulatory Changes. ComEd is responding, and is
undertaking a significant planning effort to respond further, to the
developments within the utility industry and the 1997 Act and its potential
for strandable investment. During the past several years, such efforts have
focused on cost reductions, including personnel reductions, efficiencies in
purchasing and inventory management, and an incentive compensation system
keyed to cost control and improvement in shareholder value. Notwithstanding
these efforts, ComEd's costs remain high in comparison to its neighboring
utilities. Although ComEd's operating results and financial condition have
historically been affected by various rate proceedings, ComEd expects that the
changes in the national and Illinois electric energy marketplace, and ComEd's
activities anticipating or responding to them, will directly impact its
operating results and financial condition over the next several years.
6
<PAGE>
ComEd anticipates that the 1997 Act, and the resultant increasing
competition to supply energy in Illinois and elsewhere, will have significant
effects upon its revenues and assets as it takes steps to adjust its
operations and services to meet the changing market for electric energy. ComEd
has been examining methods of positioning itself and its affiliates to deal
with those effects and to address the developing opportunities and challenges.
ComEd has been engaged in a broad-based examination of its assets and
operations, particularly nuclear and fossil generation and generation-related
(i.e., fuel and inventory) assets, with a view toward rationalizing their
investment and operating costs against their ability to contribute to the
revenues of ComEd under various market scenarios. Such an assessment involves
the consideration of numerous factors, including revenue contribution,
operating costs, impacts on ComEd's service obligations, purchase commitments
and the impact of various options. Such options include continued operation
with accelerated depreciation, indefinite suspension from operation, sale to a
third party and retirement or closure. As discussed below, ComEd recently
ceased nuclear generation operations and retired facilities at its Zion
Station. If ComEd retired or closed one or more additional generating plants,
particularly a nuclear plant, such retirement would have a material impact on
Unicom and ComEd's financial position and results of operations.
On January 14, 1998, the Boards of Directors of Unicom and ComEd authorized
the permanent cessation of nuclear generation operations and retirement of
facilities at ComEd's 2,080 megawatt Zion nuclear generating station. Such
retirement resulted in a charge for 1997 of $523 million (after-tax). The
decision to close Zion Station was a result of an ongoing analysis, which
ComEd performed regarding the economic value of its generating assets in light
of the expected changes in the manner in which electric energy is marketed and
sold. The passage of the 1997 Act provided a clearer basis for evaluating the
costs and benefits of alternative courses of action. In reaching the decision
to cease nuclear generation operations at Zion Station, the Boards also
considered the significant uncertainty associated with continued operation of
the station due to the degradation of the steam generators, and the expected
operating costs associated with continued station operation.
Notwithstanding the closure of Zion Station as a nuclear generating
facility, a portion of the station will continue to be used to provide voltage
support in the transmission system that serves ComEd's northern region. Such
support will require capital expenditures at the station as well as upgrades
to the transmission system at various points, in order to improve the ability
to import and transport power through the system. See Note 5 of Notes to
Financial Statements for additional information.
In April 1996, ComEd announced that it had finalized agreements to sell two
of its coal-fired generating stations, representing 1,600 megawatts of
generating capacity. Under the agreements, State Line and Kincaid stations are
expected to be sold for a total of $250 million, which approximates the book
value of the stations. The net proceeds are expected to be approximately $200
million (after-tax), which will be used to retire or redeem existing debt.
Under the terms of the sales, ComEd will enter into exclusive 15-year
purchased power agreements for the output of the plants. On March 31, 1997,
the ICC issued an order approving the agreements. A subsequent appeal has been
dropped by the intervening parties. The sale of State Line Station for its
approximate book value was finalized in December 1997. The net proceeds of the
sale, after income tax effects and closing costs, were approximately $56
million. The Kincaid Station sale is expected to be finalized during the first
quarter of 1998.
ComEd joined with eight Midwestern utilities in the formation of a regional
Midwest ISO in January 1998. The Midwest ISO is a key element in accommodating
the restructuring of the electric industry and will promote enhanced
reliability of the transmission system, equal access to the transmission
system and increased competition. The Midwest ISO will establish an
independent body that will ultimately take over direction of the management of
the transmission system for the utilities involved. ComEd will retain
ownership of its transmission lines. The formation of the Midwest ISO is
subject to FERC approval.
7
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Construction Program. ComEd has a construction program for the year 1998,
which consists principally of improvements to its existing nuclear and other
electric production, transmission and distribution facilities. It does not
include funds to add new generating capacity to ComEd's system. The program,
as currently approved by ComEd, includes the following estimated expenditures
(excluding nuclear fuel expenditures of approximately $160 million):
<TABLE>
<CAPTION>
1998
------------
(MILLIONS OF
DOLLARS)
<S> <C>
Production...................................................... $425
Transmission and Distribution................................... 415
General......................................................... 90
----
$930
====
</TABLE>
Such estimated expenditures include $130 million toward the replacement of
the steam generators at ComEd's Braidwood Unit 1 and Byron Unit 1 nuclear
generating units by year-end 1998. The total replacement cost is estimated to
be $455 million, of which approximately $295 million has been incurred through
December 31, 1997 and $30 million will be incurred in 1999.
ComEd's forecasts of peak load indicate a need for additional resources to
meet demand, either through generating capacity, equivalent purchased power or
the development of additional demand-side management resources, in 1998 and
each year thereafter. However, ComEd believes that adequate resources,
including cost-effective demand-side management resources, non-utility
generation resources and other-utility power purchases, could be obtained in
sufficient quantities to meet such forecasted needs.
Purchase commitments for ComEd, principally related to construction and
nuclear fuel, approximated $286 million at December 31, 1997. In addition,
ComEd's estimated commitments for the purchase of coal are as follows:
<TABLE>
<CAPTION>
CONTRACT PERIOD COMMITMENT (1)
-------------- --------- --------------
<S> <C> <C>
Black Butte Coal Co................................ 1998-2000 $ 679
Decker Coal Co..................................... 1998-2014 427
Other commitments.................................. 1998 25
------
$1,131
======
</TABLE>
--------
(1) In millions of dollars, excluding transportation costs. 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 23 of Notes to
Financial Statements.
Capital Resources. ComEd forecasts that internal sources will provide
approximately three-fourths of the funds required for ComEd's 1998
construction program and other capital requirements, including nuclear fuel
expenditures, contributions to nuclear decommissioning funds, sinking fund
obligations and refinancing of scheduled debt maturities. See Notes 10 and 12
of Notes to Financial Statements for the summaries of the annual sinking fund
requirements and scheduled maturities for ComEd preference stock and long-term
debt, respectively. The forecast takes into consideration the 1997 Act. See
"Changes in the Electric Utility Industry" above and "Regulation," subcaption
"Rate Matters" below for additional information.
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 21 of Notes to Financial Statements for
additional
8
<PAGE>
information concerning ComEd's nuclear fuel lease facility. ComEd has $758
million of unused bank lines of credit at December 31, 1997, which may be
borrowed at various interest rates and may be secured or unsecured. The
interest rate is set at the time of a borrowing and is based on several
floating rate bank indices plus a spread, which is dependent upon the credit
ratings of ComEd's outstanding first mortgage bonds 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 13 of Notes to Financial Statements for additional
information concerning lines of credit. See the Statements of Consolidated
Cash Flows for the construction expenditures and cash flow from operating
activities for the years 1997, 1996 and 1995.
During 1997, ComEd sold and leased back $150 million of nuclear fuel through
its existing nuclear fuel lease facility. In 1997, ComEd issued $150 million
principal amount of 7.375% Notes due January 15, 2004, $150 million principal
amount of 7.625% Notes due January 15, 2007 and $150 million principal amount
of 8.50% Trust Securities due January 15, 2027, the proceeds of which were
used to discharge current maturities of long-term debt and to redeem $200
million principal amount of first mortgage bonds. See the Statements of
Consolidated Cash Flows and Note 7 of Notes to Financial Statements for
information regarding common stock activity.
As of January 30, 1998, ComEd has an effective "shelf" registration
statement with the SEC for the future sale of up to an additional $505 million
of debt securities and cumulative preference stock for general corporate
purposes of ComEd, including the discharge or refund of other outstanding
securities.
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-
Trust Securities................................. baa3 BBB- BBB-
Commercial paper................................. P-2 A-2 D-2
</TABLE>
In January 1997, Moody's changed the rating outlook on ComEd's securities
from "stable" to "negative" and Duff & Phelps added ComEd's securities to
"Rating Watch-Down." As of January 1998, S&P's rating outlook on ComEd
remained "stable."
Capital Structure. The ratio of long-term debt to total capitalization has
increased to 48.5% at December 31, 1997 from 46.1% at December 31, 1996. This
increase is related primarily to the write-offs recorded in the fourth quarter
of 1997 due to the discontinuance of regulatory accounting practices for
generation-related assets and the closure of Zion Station. Also as a result of
such write-offs, ComEd's retained earnings account had a deficit balance of
$19.2 million at December 31, 1997. As of December 31, 1997, $384 million of
retained earnings had been appropriated for future dividend payments.
Year 2000 Conversion. ComEd uses various software, systems and technology
throughout its businesses that will be affected by the date change in the Year
2000 and any failure to address Year 2000 issues in a timely manner could
result in a material operational or financial risk. ComEd's approach to
addressing Year 2000 compliance issues is to upgrade or remediate software,
systems and technology that are not Year 2000 compliant and that are not
otherwise being replaced in accordance with ComEd's business plans. ComEd is
in the process of replacing certain of its financial, human resources,
payroll, and customer service and billing software with new software that is
Year 2000 compliant. In other cases, ComEd is upgrading existing software to
versions that are Year 2000
9
<PAGE>
compliant where such upgrades are available. In cases where ComEd has
determined that it is not appropriate to replace existing software that is not
Year 2000 compliant, and that Year 2000-compliant upgrades are not available,
ComEd is remediating the software to make it Year 2000 compliant. Accordingly,
ComEd is upgrading or remediating certain software and systems in its nuclear
and fossil electricity generation business units and in its transmission and
distribution and supply management business units. ComEd is also in the
process of evaluating whether Year 2000 compliance issues will affect any of
its key suppliers. The schedule for the implementation of new Year 2000-
compliant software and upgraded versions of existing software, and the
remediation of software not being replaced or upgraded, contemplates that such
efforts will be completed by the end of 1998, except in the nuclear generation
business unit, where completion is scheduled for the third quarter of 1999.
The total cost of remediating or upgrading software, that is not being
replaced or upgraded in accordance with business plans, is currently estimated
to be approximately $20 million.
Market Risks. ComEd is exposed to market risk due to changes in interest
rates and changes in the market price for electricity. Exposure for interest
rate changes relates to its long-term debt and preferred equity obligations.
Exposure to electricity market price risk relates to forward activities taken
to effectively manage the supply of, and demand for, the electric generation
capability of ComEd's generating plants. ComEd does not currently utilize
derivative commodity or financial instruments for trading or speculative
purposes.
Interest Rate Exposure. The table below provides the fair value and average
interest, or fixed dividend rate, of ComEd's outstanding debt and preferred
stock equity instruments at December 31, 1997.
<TABLE>
<CAPTION>
EXPECTED MATURITY DATE FAIR VALUE
COMED AND SUBSIDIARY ---------------------------------------- AS OF
COMPANIES (MILLIONS) 1998 1999 2000 2001 2002 THEREAFTER TOTAL 12/31/97
- -------------------- ---- ---- ---- ---- ---- ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-Term Debt--
Fixed Rate............. $353 $150 $462 $108 $305 $4,291 $5,669 $6,003
Average Interest Rate.. 6.6% 8.8% 7.2% 7.3% 7.9% 8.0%
Variable Rate.......... $150 $ -- $ -- $ -- $ -- $ 292 $ 442 $ 442
Average Interest Rate.. 6.5% 3.7%
Preferred and Preference
Stock--
Subject to Mandatory
Redemption............ $ 31 $ 18 $ 88 $ 18 $ 18 $ 33 $ 206 $ 209
Average Dividend Rate.. 8.9% 8.8% 7.3% 8.8% 8.8% 8.8%
Not Subject to Manda-
tory Redemption....... $ -- $ -- $ -- $ -- $ -- $ 507 $ 507 $ 515
Average Dividend Rate.. 8.2%
Trust Securities........ $ -- $ -- $ -- $ -- $ -- $ 350 $ 350 $ 372
Average Dividend Rate.. 8.5%
</TABLE>
Market Price Exposure. In the normal course of business, ComEd utilizes
contracts for the forward sale and purchase of electricity to effectively
manage the utilization of its available generating capability. Such contracts
include forward contracts for wholesale sales of generating capability, during
periods when ComEd's available generating capability is expected to exceed the
demands of its retail, or native load, customers. Such contracts may also
include forward contracts for the purchase of generating capability during
periods when the expected market price for electricity is below ComEd's
expected incremental cost of generation. A sensitivity analysis has been
performed which concluded that the market price risk exposure of these
transactions is not material.
The market price of electricity is subject to price volatility associated
with changes in supply and demand in the electric supply markets. To limit the
market price risk associated with the forward commodity contracts described in
the preceding paragraph, ComEd has utilized energy put and call option
contracts and energy swap arrangements. A sensitivity analysis has been
performed which indicates that the market price risk exposure of these
financial instruments is not material.
10
<PAGE>
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 Matters. In January 1995, the ICC issued its Rate Order in the
proceedings relating to ComEd's February 1994 rate increase request. The Rate
Order provided, among other things, for an increase in ComEd's total revenues
of approximately $302 million (excluding add-on revenue taxes) on an annual
basis. 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. The Rate Order was appealed by intervenors and
ComEd to the Illinois Appellate Court, which issued a decision on May 30, 1997
affirming the Rate Order in all respects with the exception of two issues,
which it remanded to the ICC for the purpose of providing further analysis.
Those issues relate to: (i) the manner in which certain costs are recovered
and which customers should pay those costs, and (ii) the proper rate of return
on common equity for ComEd. ComEd believes that the ICC can satisfy the
Appellate Court's remand directions on the basis of the existing record from
the ICC proceedings which led to the Rate Order. The Appellate Court's
decision was not appealed and the matter was returned to the ICC, where a
decision is expected early in the second quarter of 1998.
With respect to the first issue remanded to the ICC, ComEd does not believe
it will have any effect on the overall level of rates. With respect to the
rate of return on common equity issue, the ICC had determined in the Rate
Order that ComEd's cost of common equity was 12.28%. Intervenors had submitted
testimony recommending a return on common equity of 11.50%. The Appellate
Court decision requires the ICC to clarify the basis for certain of its
findings relating to its rejection of the intervenors' recommendation and to
analyze further how it arrived at its conclusions. The Appellate Court stated
that after reanalyzing these bases the ICC can determine whether or not the
cost of common equity determination it adopted should still be followed. Each
tenth of one percent change in the rate of return on common equity has
approximately an $8 million effect on the level of annual revenues. The
Appellate Court's decision does not have any immediate effect on ComEd's rates
or require any refunds. In connection with the initiation of the appeal, ComEd
committed to make refunds "in the event that a final, non-appealable order is
entered reversing the ICC's Rate Order." Revenues of approximately $195
million would be subject to refund if the ICC were to adopt the lower rate of
return on common equity recommended by intervenors. An ICC Hearing Examiner
issued a proposed order in January 1998, which if adopted by the ICC, would
uphold the Rate Order and the associated $302 million revenue increase on an
annual basis.
See "Changes in the Electric Utility Industry" above for information
regarding the 1997 Act.
Nuclear Matters. Nuclear operations have been, and remain, an important
focus of ComEd--given the impact of such operations on overall O&M
expenditures and the ability of nuclear power plants to produce electric
energy at a relatively low marginal cost. ComEd operates a large number of
nuclear plants, ranging from the older Dresden and Quad Cities stations to the
more recently completed LaSalle, Byron and Braidwood stations, and is intent
upon safe, reliable and efficient operation. These plants were constructed
over a period of time in which technology, construction procedures and
regulatory initiatives and oversight have evolved, with the result that older
plants generally require greater attention and resources to meet regulatory
requirements and expectations as well as to maintain operational reliability.
As discussed in "Changes in the Electric Utility Industry" above, ComEd is
closing its Zion Station.
ComEd's Dresden, Zion and LaSalle nuclear generating stations are currently
on the NRC's list of plants to be monitored closely. Dresden Station has been
on the list since 1992 and LaSalle and Zion
11
<PAGE>
stations were added in January 1997. On January 21, 1998, the NRC stated that
although Dresden Station has demonstrated sustained improved performance that
would warrant removal from the list, continued evidence of cyclical
performance at ComEd's other nuclear generating stations indicated Dresden
Station did not meet all the criteria for removal from the list. At its
January 21, 1998 meeting, the NRC acknowledged improvements at LaSalle Station
but concluded that a substantial amount of work remains and the plant should
remain on the list. The NRC also stated that, based on a determination made
prior to the announcement of the cessation of power operations, at the
station, Zion should remain on the list. The listing of the plants does not
prevent ComEd from operating the generating units; however, it does mean that
the NRC will devote additional resources to monitoring ComEd's operating
performance and that ComEd will need to work to demonstrate to the NRC the
sustainability of improvements which it believes it has undertaken and is
continuing to implement. Also at the meeting, the NRC noted a declining
performance trend at Quad Cities Station. The NRC stated that although
operations performance at Quad Cities Station was generally good, weaknesses
were observed with respect to certain maintenance and engineering activities.
The NRC has indicated that it is monitoring ComEd's ability to manage its
nuclear operations in their entirety and that the performance at any one
facility will be viewed by the NRC in context with the performance of ComEd's
nuclear generating group as a whole.
In January 1997, the NRC also took the unusual additional step of requiring
ComEd to submit information to allow the NRC to determine what actions, if
any, should be taken to assure that ComEd can safely operate its six nuclear
generating stations while sustaining performance improvement at each site. The
request also required ComEd to submit information regarding the criteria that
it has established, or planned to establish, to measure performance and to
explain ComEd's proposed actions if the criteria were not met. The request
stated the NRC staff's concerns with the "cyclical safety performance of ComEd
nuclear stations," noting the presence on the list of plants to be monitored
closely of Dresden, LaSalle and Zion stations at various times during the past
10 years. It also noted concerns regarding "ComEd's ability to establish
lasting and effective programs that result in sustained performance
improvement." The problems identified by the NRC are consistent with
weaknesses that have been identified in station self-assessments initiated by
ComEd, and management had already undertaken to develop and implement programs
designed to address these issues. ComEd submitted a response to the NRC on
March 28, 1997 and the NRC indicated in an April 25, 1997 public meeting with
representatives of ComEd management that ComEd's response was generally
adequate to demonstrate ComEd's ability to operate its nuclear generating
stations while sustaining performance improvements. In a November 4, 1997
meeting with the NRC staff, the NRC indicated that it believes ComEd's nuclear
performance has shown improvement, but that it is too early to conclude that
lasting improvement has been achieved. The NRC noted, as an exception to
ComEd's general improving and sustained performance in its nuclear operations,
concerns regarding ComEd's engineering efforts to resolve the longstanding
fire protection issues at the Quad Cities Station. The NRC and representatives
of ComEd's management have met and will continue to meet periodically in the
future, to follow-up on these matters.
ComEd has devoted, and intends to continue to devote, significant resources
to the management and operations of its nuclear generating stations. Over the
past several years, it has increased and reinforced station management with
managers drawn from other utilities which have resolved similar operational
and performance issues, including the appointment of a new Chief Nuclear
Officer in late 1997. It has also sought to identify, anticipate and address
operating and performance issues in a safe, cost-effective manner, while
seeking to improve the availability and capacity factors of its nuclear
generating units.
ComEd's activities, with respect to its nuclear generating stations, have
included improvements in operating and personnel procedures and repair and
replacement of equipment and can result in longer unit outages. LaSalle Units
1 and 2 and Quad Cities Units 1 and 2 are currently not operating. ComEd
12
<PAGE>
is developing an integrated schedule for restarting the units at LaSalle
Station. It currently is expected that LaSalle Unit 1 will restart in the
third quarter of 1998 and LaSalle Unit 2 is expected to restart approximately
six months later. Both units at Quad Cities Station are expected to return to
service in the Spring of 1998.
The LaSalle outage and an outage at Zion were part of several outages of
nuclear and fossil generating stations that several utilities operating in the
Midwestern power grid (including ComEd) were expecting and experienced during
1997. Although ComEd met its customers' electricity demands, the expectation
of the NERC, prior to the beginning of the summer, had been that there could
have been electric energy shortages during summer peak demand periods due to
generating station outages in the Midwestern power grid and transmission
limitations on delivering power from neighboring systems. In response to these
regional circumstances and expectations, ComEd increased the availability of
its remaining nuclear and fossil generating capacity, reinforced transmission
capacity, negotiated the purchase of power and related transmission service
from third parties, and worked with a number of customers to manage the use
and demand for power. The NERC will be analyzing electric reliability for the
summer of 1998 in light of the potential for continued outages of nuclear
plants operated by several utilities in the Midwestern power grid.
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 and for the year 1995. In
1996, an intervenor filed testimony in the fuel reconciliation proceeding for
1994 seeking a refund of approximately $90 million relating to nuclear station
performance. The 1997 Act provides that the fuel reconciliation proceedings
for 1994 and 1996 must be concluded by the end of 1998. If refunds are
required in these proceedings, the refunds could have a material effect on
results of operations. The 1997 Act also provides that, because ComEd
eliminated its FAC effective January 1, 1997, the ICC shall not conduct a fuel
reconciliation proceeding for the year 1997 and subsequent years. See "Changes
in the Electric Utility Industry" above for information regarding the
elimination of ComEd's FAC.
Based on ComEd's most recent study, decommissioning costs, including the
cost of decontamination and dismantling, are estimated to aggregate $4.8
billion in current-year (1998) dollars, including a contingency allowance.
ComEd estimates it will expend approximately $12.9 billion, including a
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 as well as changes in the assumptions used in
making such estimates, including changes in technology, available alternatives
for the disposal of nuclear waste, and inflation. See Note 1 of Notes to
Financial Statements under "Depreciation and Decommissioning" for additional
information.
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 23 of Notes to Financial Statements.
RESULTS OF OPERATIONS
Net Income (Loss) on Common Stock. The loss for 1997 was primarily due to
ComEd's discontinuation of regulatory accounting practices for the generation
portion of its business and other charges recorded as a result of the 1997
Act. The 1997 results also include the write-off for the closure of Zion
nuclear generating station.
13
<PAGE>
ComEd discontinued regulatory accounting practices for the generation
portion of its business in the fourth quarter of 1997 due to the 1997 Act.
Accordingly, ComEd's generation-related net regulatory assets (which represent
assets and liabilities properly recorded under regulatory accounting practices
but which would not be recorded under GAAP for non-regulated entities) were
written off, resulting in an extraordinary charge of $810 million (after-tax).
In addition, as permitted under the 1997 Act, ComEd elected to eliminate its
FAC in December 1997, which resulted in a charge of $44 million (after-tax).
The reduction includes $25 million (after-tax) in net FAC charges billed to
its customers in 1997, which will be refunded to customers in 1998. The
reduction also includes a write-off of $19 million (after-tax) in
underrecovered energy costs that ComEd would have been entitled to recover if
the FAC had remained in effect.
Also, 1997 results include the write down of ComEd's investment in uranium-
related properties to reflect costs which are not expected to be recovered in
a competitive market. The write down resulted in a charge of $60 million
(after-tax).
Partially offsetting the charges to operations for 1997 was a change in the
accounting method for revenue recognition to record ComEd's revenues
associated with service which has been provided to customers but has not yet
been billed at the end of each accounting period, retroactive to January 1,
1997. This change in accounting method had a positive impact of $170 million
(after-tax), consisting of a one-time cumulative effect of the change for
years prior to 1997 of $197 million (after-tax), less the impact of the change
on 1997 results of $27 million (after-tax).
On January 14, 1998, the Boards of Directors of Unicom and ComEd authorized
the cessation of nuclear generation operations at ComEd's Zion Station. The
closure resulted in a charge for 1997 of $523 million (after-tax), reflecting
the write-off of the unrecoverable portion of the cost of plant and
inventories and a liability for future closing costs.
ComEd's kilowatthour sales, including sales to wholesale customers,
increased 5% during 1997 compared to 1996, as discussed below. In 1997 O&M
expenses increased by 12%, as discussed below.
Also reducing 1997 operating results were increased fuel and purchased power
costs of $336 million, as discussed below. In addition, a 4% increase in
depreciation expense, primarily due to an increase in certain nuclear plant
depreciation resulted in a charge of $23 million (after-tax).
The 1996 results reflect, among other factors, a 1% decrease in overall O&M
expenses as compared to 1995 and the positive effects of an income tax refund
related to prior years with an increase in operating results of $26 million
(after-tax) and a reduction in real estate taxes with an increase in operating
results of $28 million (after-tax). Approximately half of the reduction in
real estate taxes is related to the year 1995. The real estate tax reduction
results primarily from ongoing challenges by ComEd of the methodology used by
local taxing authorities to assess the value of ComEd's nuclear generating
stations. The 1996 results also reflect a 9% reduction in the total of
interest expense on debt and dividend requirements on preferred and preference
stocks compared to 1995, largely due to the early retirement of debt at the
end of 1995. In September 1996, the ICC approved ComEd's request to increase
depreciation charges on its nuclear generating units by $30 million for the
year 1996, resulting in a charge of $20 million (after-tax).
The 1995 results reflect higher revenues, primarily as a result of higher
kilowatthour sales, and the higher rate levels, which became effective in
January 1995 under the Rate Order. The higher kilowatthour sales reflect the
unusually hot summer weather in 1995. The 1995 results were also affected by
higher O&M expenses, which reflect a charge of $59 million (after-tax) for a
voluntary employee separation offer to certain ComEd employees. ComEd also
recorded a charge of $20 million (after-tax) related to the early redemption
of $645 million of long-term debt.
14
<PAGE>
Operating Revenues. ComEd's electric operating revenues reflect revenues
from sales to ultimate consumers (including residential, commercial and
industrial customers within its service territory), revenues from sales for
resale (i.e., sales to wholesale customers, principally other electric
utilities), and revenues from collections under its FAC for years prior to
1997 (which was intended to recover variations in ComEd's fuel cost for
generating electric energy and the energy portion of purchased power cost in
relation to the amount included in ComEd's base rates). Operating revenues are
affected by kilowatthour sales, rates and FAC recoveries. Kilowatthour sales,
in turn, are affected by weather, the level of economic activity within
ComEd's service area, and off-system or wholesale sales to other utilities.
Off-system sales opportunities are affected by a number of factors, including
nuclear generating availability and performance.
During 1997, electric operating revenues increased $139 million, primarily
due to a 29% increase in kilowatthour sales to wholesale customers.
Kilowatthour sales to ultimate consumers during 1997 increased 1% compared to
1996, reflecting continued economic growth in ComEd's service territory.
Operating revenues in 1997 were reduced by the provision for revenue refunds
of $45 million, including revenue taxes, related to the elimination of the
FAC. Operating revenues increased $25 million in the year 1996, as compared to
the year 1995, principally reflecting increased sales for resale and increased
energy cost recoveries under ComEd's then effective FAC, although kilowatthour
sales to ultimate consumers were down 1% from the prior year due to the cooler
summer weather compared to the exceptionally hot summer in 1995. Operating
revenues increased $632 million in the year 1995, as compared to the year
1994, primarily due to an increase of 5% in kilowatthour sales to ultimate
consumers attributable to the hot summer weather, as well as a rate increase
that became effective in January 1995.
Fuel Costs. Changes in fuel expense for the years 1997, 1996 and 1995
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>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Cost of fuel consumed (per million Btu):
Nuclear........................................... $0.57 $0.53 $0.52
Coal.............................................. $2.28 $2.41 $2.43
Oil............................................... $3.90 $3.41 $3.06
Natural gas....................................... $2.69 $2.75 $1.85
Average all fuels................................. $1.33 $1.17 $1.05
Net generation of electric energy (millions of
kilowatthours).................................... 85,861 93,048 96,608
Fuel sources of kilowatthour generation:
Nuclear........................................... 57% 67% 73%
Coal.............................................. 39 30 24
Oil............................................... -- 1 --
Natural gas....................................... 4 2 3
------ ------ ------
100% 100% 100%
====== ====== ======
</TABLE>
The decrease in nuclear generation as a percentage of total generation for
1997 compared to the prior years is primarily due to outages at certain of
ComEd's nuclear generating stations. See "Regulation," subcaption "Nuclear
Matters" above for information regarding outages at certain of ComEd's nuclear
generating stations.
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
15
<PAGE>
year (to be adjusted annually for inflation) to year 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 "Nuclear Fuel," for information related to the
accounting for such costs.
Fuel Supply. Compared to other utilities, ComEd has relatively low average
fuel costs as a result of its reliance predominantly on lower cost nuclear
fuel. 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 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
December 31, 1997, ComEd had coal reserves of $282 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 "Coal
Reserves" in Note 1 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. Purchased power costs
increased $255 million in 1997 compared to 1996, primarily due to outages at
certain of ComEd's nuclear generating stations. See "Regulation," subcaption
"Nuclear Matters" above, for information regarding outages at certain of
ComEd's nuclear generating stations.
The number and average cost of kilowatthours purchased were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ----- -----
<S> <C> <C> <C>
Kilowatthours (millions)............................... 16,672 6,129 2,475
Cost per kilowatthour.................................. 2.40c 2.37c 2.60c
</TABLE>
Purchased power is expected to increase in the year 1998 compared to the
year 1997 due to expected increased kilowatthour sales, lower nuclear
generation and higher costs for power purchased from other utilities.
Deferred Under or Overrecovered Energy Costs--Net. Operating expenses for
the years 1997, 1996 and 1995 include the net change in under or overrecovered
allowable energy costs under ComEd's FAC. Operating expenses in 1997 also
reflect the write-off of the unrecoverable energy costs related to the
elimination of ComEd's FAC. See "Changes in the Electric Utility Industry,"
"Fuel Costs" and "Fuel Supply" above and Note 1 of Notes to Financial
Statements under "Fuel Adjustment Clause."
Operation and Maintenance Expenses. O&M expenses include the expenses
associated with operating and maintaining ComEd's generation, transmission and
distribution assets as well as customer service, administrative overhead and
support. Given the variety of expense categories covered, there are a number
of factors which affect the level of such expenses within any given year. Two
major components of such expenses, however, are the costs associated with
operating and maintaining ComEd's nuclear and fossil generating facilities.
Generating station expenses are affected by the cost of materials, regulatory
requirements and expectations, the age of facilities as well as cost control
efforts.
During the three years presented in the financial statements, the aggregate
level of O&M expenses increased 12% in 1997 compared to 1996, decreased 1% in
1996 compared to 1995, and increased 4% in 1995 compared to 1994. All three
years include increases in the level of generating station expenses, as
discussed below. The year to year variations reflect efforts in 1996 and 1997
to improve nuclear generating station availability as well as to meet
regulatory requirements and
16
<PAGE>
expectations, and the impact in 1995 of an early separation program offered to
ComEd's employees, which resulted in a $97 million charge. Additional factors
in each year also affected the level of O&M expenses.
O&M expenses associated with nuclear generating stations increased $122
million, $88 million and $32 million for the years 1997, 1996 and 1995,
respectively, as a result of activities associated with the repair,
replacement and improvement of nuclear generating facility equipment. Since
1995, ComEd has increased the number and scope of maintenance activities
associated with its nuclear generating stations. Such efforts are the result
of station performance evaluations performed to identify the sources and
causes of unplanned equipment repairs. The goal of such efforts is to design
and implement cost effective repairs and improvements to increase station
availability. The efforts begun in 1995 are expected to continue through 1998.
The increase in O&M expenses associated with nuclear generating stations has
been driven by ComEd's objective to improve station availability, as well as
to meet regulatory requirements and expectations. ComEd is pursuing a program
to improve the quality of nuclear operations, including safety and efficiency,
which is also expected to achieve a longer term goal of improved availability
and to be positioned to take advantage of opportunities in a more competitive
market. During the three years presented in the financial statements, ComEd
increased and reinforced station management with managers drawn from other
utilities which have resolved similar operating issues. It has also sought to
identify, anticipate and address nuclear station operating and performance
issues in a safe, cost-effective manner, while seeking to improve the
availability and capacity factors of its nuclear generating units. Such
activities have included improvements in operating and personnel procedures
and repair and replacement of equipment, and can result in longer unit
outages. Such activities have involved increased maintenance and repair
expenses in recent years.
O&M expenses associated with fossil generating stations increased $31
million, $4 million and $3 million for the years 1997, 1996 and 1995,
respectively. The increase related to fossil generating stations in 1997 is
primarily due to an increase in the repair and improvement of fossil
generating facility equipment in order to increase their general availability,
and to ensure their availability during the Summer of 1997. That increase was
partially offset by a reduction in personnel.
O&M expenses associated with transmission and distribution facilities
increased $15 million and $11 million for the years 1997 and 1996,
respectively, and decreased $3 million for the year 1995. The 1997 increase is
primarily due to increased emergency restoration of electric service and tree
trimming costs. The 1996 increase reflects higher maintenance expenses. The
decrease in 1995 reflects cost control efforts. O&M expenses associated with
customer-related activities increased $11 million, $17 million and $10 million
for the years 1997, 1996 and 1995, respectively. The increase in 1997 is
primarily due to an increase in uncollectible accounts.
O&M expenses also include compensation and benefits expenses. Since 1995,
ComEd has reduced the size of its workforce by offering incentives for
employees to leave the company voluntarily. Such incentives included both
current payments and earlier eligibility for post-retirement health care
benefits, resulting in charges of $39 million, $12 million and $97 million for
the years 1997, 1996 and 1995, respectively.
Other compensation and benefits expenses, excluding the effects of employee
separation plans, decreased $14 million, $20 million and $65 million for the
years 1997, 1996 and 1995, respectively. The decrease in 1997 is primarily due
to a reduction in medical costs for active employees. The decreases in 1996
and 1995 are primarily related to a reduction of post-retirement health care
benefits costs, primarily as a result of a plan amendment effected in mid-1995
which required retired employee contributions to the plan for the first time.
Favorable experience also allowed the use of lower health care cost trend
rates, producing a lower charge in 1996 and 1995. O&M expenses also reflect
17
<PAGE>
$41 million, $38 million and $65 million for employee incentive compensation
plan costs for the years 1997, 1996 and 1995, respectively. The payments,
which were made partly in cash and partly in shares of Unicom common stock,
were made under Unicom's Incentive Plans as the result of the achievement
during the indicated years of specified financial performance, operating
performance and increased shareholder value. The effects of inflation have
also increased O&M expenses during the years and are also reflected in the
increases and decreases discussed herein.
O&M expenses in 1997 also include $25 million for the additional write-off
of obsolete materials and supplies compared to 1996. O&M expenses associated
with certain administrative and general costs increased $35 million for the
year 1997. This increase was due to a variety of reasons including an increase
in the provision for vacation pay liability.
Depreciation. Depreciation expense increased for the years 1997, 1996 and
1995 as a result of additional nuclear plant depreciation and additions to
plant in service. The additional depreciation on ComEd's nuclear generating
units includes depreciation recorded for the year 1997 related to its steam
generators at Byron Unit 1 and Braidwood Unit 1 of $59 million, which are
expected to be replaced prior to year-end 1998, and the 1996 additional
depreciation initiative of $30 million. See "Depreciation and Decommissioning"
in Note 1 of Notes to Financial Statements.
Interest on Debt. Changes in interest on long-term debt and notes payable
for the years 1997, 1996 and 1995 were due to changes in average interest
rates and in the amounts of long-term debt and notes payable outstanding.
Changes in interest on long-term debt also reflected new issues of debt, the
retirement and early redemption of debt, and the retirement and redemption of
issues which were refinanced at generally lower rates of interest. The average
amounts of long-term debt and notes payable outstanding and average interest
rates thereon were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Long-term debt outstanding:
Average amount (millions).......................... $6,256 $6,644 $7,528
Average interest rate.............................. 7.65% 7.67% 7.78%
Notes payable outstanding:
Average amount (millions).......................... $ 153 $ 230 $ 51
Average interest rate.............................. 5.95% 5.79% 6.40%
</TABLE>
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 and issued an exposure draft in
February 1996 requesting written comment. If current electric utility industry
accounting practices for such decommissioning costs are changed, annual
provisions for decommissioning could increase and the estimated cost for the
decommissioning of operating nuclear plants after retirement could be recorded
as a liability rather than as accumulated depreciation. Decommissioning costs
of currently retired nuclear plants are recorded as a liability. ComEd does
not believe that such changes, if required, would have an adverse effect on
the results of operations due to its ability to recover decommissioning costs
through rates.
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 under "AFUDC."
AFUDC does not contribute to the current cash flow of ComEd. ComEd
discontinued SFAS No. 71 regulatory accounting practices in December 1997 for
the generation-related portion of its business. As a result, ComEd will not
record AFUDC, but will capitalize interest costs on its generation-related
construction work in progress and nuclear fuel in process beginning in 1998.
The ratios of earnings to fixed charges for the years 1997, 1996 and 1995
were 0.58, 2.90 and 2.79, respectively. The ratios of earnings to fixed
charges and preferred and preference stock dividend
18
<PAGE>
requirements for the years 1997, 1996 and 1995 were 0.49, 2.48 and 2.39,
respectively. Earnings for 1997 were inadequate to cover fixed charges and
fixed charges and preferred and preference stock dividend requirements by
approximately $259 million and $359 million, respectively. The deficiency is
principally attributable to the earnings impact of the closure of Zion
Station.
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.
19
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of 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, 1997 and 1996, and
the related statements of consolidated operations, retained earnings (deficit)
and cash flows for each of the three years in the period ended December 31,
1997. 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 ofDecember 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
As discussed in Note 3, effective January 1, 1997, the Company changed its
method of accounting for revenue recognition.
Arthur Andersen LLP
Chicago, Illinois
January 30, 1998
20
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED OPERATIONS
The following Statements of Consolidated Operations for the years 1997, 1996
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, regulation, population,
business activity, competition, taxes, environmental control, energy use,
fuel, cost of labor, purchased power and other matters, the nature and effect
of which cannot now be determined.
<TABLE>
<CAPTION>
1997 1996 1995
----------- ---------- ----------
(THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Electric Operating Revenues............... $ 7,073,088 $6,934,547 $6,909,786
----------- ---------- ----------
Electric Operating Expenses and Taxes:
Fuel..................................... $ 1,223,210 $1,167,039 $1,089,841
Purchased power.......................... 400,055 145,299 64,378
Deferred (under)/overrecovered energy
costs--net.............................. 16,228 (9,184) (2,732)
Operation................................ 1,714,460 1,496,175 1,597,964
Maintenance.............................. 689,729 652,495 566,749
Depreciation............................. 985,877 951,865 897,305
Recovery of regulatory assets............ 15,272 15,272 15,272
Taxes (except income).................... 799,167 782,668 832,026
Income taxes--
Current--Federal....................... 214,349 265,325 257,083
--State................................ 65,287 74,192 87,138
Deferred--Federal--net................. 56,111 140,122 172,403
--State--net........................... 2,544 16,139 15,605
Investment tax credits deferred--net..... (31,015) (33,378) (28,710)
----------- ---------- ----------
$ 6,151,274 $5,664,029 $5,564,322
----------- ---------- ----------
Electric Operating Income................. $ 921,814 $1,270,518 $1,345,464
----------- ---------- ----------
Other Income and (Deductions):
Interest on long-term debt............... $ (478,530) $ (509,898) $ (585,806)
Interest on notes payable................ (9,134) (13,308) (3,280)
Allowance for funds used during
construction--
Borrowed funds......................... 18,555 19,426 11,137
Equity funds........................... 23,770 20,776 13,129
Income taxes applicable to nonoperating
activities.............................. 11,230 7,812 5,085
Provision for dividends on company-
obligated mandatorily redeemable
preferred securities of subsidiary
trusts holding solely the Company's
subordinated debt securities............ (28,860) (16,960) (4,428)
Loss of nuclear plant closure............ (885,611) -- --
Income tax effect of nuclear plant
closure................................. 362,952 -- --
Miscellaneous--net....................... (96,324) (34,998) (44,125)
----------- ---------- ----------
$(1,081,952) $ (527,150) $ (608,288)
----------- ---------- ----------
Net Income (Loss) Before Extraordinary
Items and Cumulative Effect of Change in
Accounting Principle..................... $ (160,138) $ 743,368 $ 737,176
Extraordinary Losses Less Applicable
Income Taxes............................. (810,335) -- (20,022)
Cumulative Effect of Change in Accounting
Principle................................ 196,700 -- --
----------- ---------- ----------
Net Income (Loss)......................... $ (773,773) $ 743,368 $ 717,154
Provision for Dividends on Preferred and
Preference Stocks........................ 60,486 64,424 69,961
----------- ---------- ----------
Net Income (Loss) on Common Stock......... $ (834,259) $ 678,944 $ 647,193
=========== ========== ==========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
21
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
ASSETS 1997 1996
------ ----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Utility Plant:
Plant and equipment, at original cost (includes
construction work in progress of $1,131 million
and $1,034 million, respectively)................. $27,518,690 $27,900,632
Less--Accumulated provision for depreciation....... 11,646,445 11,479,991
----------- -----------
$15,872,245 $16,420,641
Nuclear fuel, at amortized cost.................... 906,043 973,961
----------- -----------
$16,778,288 $17,394,602
----------- -----------
Investments:
Nuclear decommissioning funds...................... $ 1,855,697 $ 1,456,360
Subsidiary companies............................... 48,605 118,188
Other investments, at cost......................... 39,002 14,903
----------- -----------
$ 1,943,304 $ 1,589,451
----------- -----------
Current Assets:
Cash............................................... $ -- $ 89
Temporary cash investments......................... 72,634 28,801
Special deposits................................... 271 1,610
Receivables--
Customers........................................ 873,418 568,155
Other............................................ 130,537 103,243
Provisions for uncollectible accounts............ (17,544) (12,893)
Coal and fuel oil, at average cost................. 120,664 140,362
Materials and supplies, at average cost............ 255,338 324,485
Deferred unrecovered energy costs.................. -- 16,228
Deferred income taxes related to current assets and
liabilities....................................... 179,493 119,917
Prepayments and other.............................. 125,507 108,086
----------- -----------
$ 1,740,318 $ 1,398,083
----------- -----------
Deferred Charges and Other Noncurrent Assets:
Regulatory assets.................................. $ 1,685,235 $ 2,434,807
Coal reserves...................................... 194,769 291,324
Other.............................................. 116,489 108,833
----------- -----------
$ 1,996,493 $ 2,834,964
----------- -----------
$22,458,403 $23,217,100
=========== ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
22
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------
CAPITALIZATION AND LIABILITIES 1997 1996
------------------------------ ----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Capitalization (see accompanying statements):
Common stock equity.................................. $ 4,866,438 $ 6,043,093
Preferred and preference stocks without mandatory
redemption requirements............................. 507,053 507,342
Preference stock subject to mandatory redemption re-
quirements.......................................... 174,328 217,901
Company-obligated mandatorily redeemable preferred
securities of subsidiary trusts holding solely the
Company's subordinated debt securities*............. 350,000 200,000
Long-term debt....................................... 5,562,883 5,957,604
----------- -----------
$11,460,702 $12,925,940
----------- -----------
Current Liabilities:
Notes payable--
Commercial paper.................................... $ 150,000 $ 121,000
Bank loans.......................................... 8,150 7,750
Current portion of long-term debt, redeemable prefer-
ence stock and capitalized lease obligations........ 772,831 781,782
Accounts payable..................................... 490,124 440,622
Accrued interest..................................... 167,807 166,862
Accrued taxes........................................ 198,556 182,366
Dividends payable.................................... 106,083 101,217
Customer deposits.................................... 55,214 51,585
Accrued plant closing costs.......................... 135,000 --
Other................................................ 164,897 98,443
----------- -----------
$ 2,248,662 $ 1,951,627
----------- -----------
Deferred Credits and Other Noncurrent Liabilities:
Deferred income taxes................................ $ 3,839,607 $ 4,568,832
Nuclear decommissioning liability for retired plants. 1,301,000 275,700
Accumulated deferred investment tax credits.......... 602,122 655,662
Accrued spent nuclear fuel disposal fee and related
interest............................................ 692,673 657,448
Obligations under capital leases..................... 437,950 474,841
Regulatory liabilities............................... 698,750 668,301
Other................................................ 1,176,937 1,038,749
----------- -----------
$ 8,749,039 $ 8,339,533
----------- -----------
Commitments and Contingent Liabilities (Note 23)
$22,458,403 $23,217,100
=========== ===========
</TABLE>
*As described in Note 11 of Notes to Financial Statements, the sole asset of
ComEd Financing I, a subsidiary trust of ComEd, is $206.2 million principal
amount of ComEd's 8.48% subordinated deferrable interest notes due September
30, 2035. The sole asset of ComEd Financing II, also a subsidiary trust of
ComEd, is $154.6 million principal amount of ComEd's 8.50% subordinated
deferrable interest debentures due January 15, 2027.
The accompanying Notes to Financial Statements are an integral part of the
above statements.
23
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED CAPITALIZATION
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1997 1996
----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Common Stock Equity:
Common stock, $12.50 par value per share--
Outstanding--214,228,077 shares and
214,218,454 shares, respectively........ $ 2,677,851 $ 2,677,731
Premium on common stock and other paid-in
capital.................................. 2,223,564 2,223,396
Capital stock and warrant expense......... (15,805) (15,990)
Retained earnings (deficit)............... (19,172) 1,157,956
----------- -----------
$ 4,866,438 $ 6,043,093
----------- -----------
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--65,912 shares and 75,003
shares, respectively.................... 2,096 2,385
Prior preferred stock, cumulative, $100
par value per share--
No shares outstanding.................... -- --
----------- -----------
$ 507,053 $ 507,342
----------- -----------
Preference Stock Subject to Mandatory Redemption
Requirements:
Preference stock, cumulative, without par
value--
Outstanding--2,058,560 shares and
2,496,775 shares, respectively.......... $ 205,016 $ 248,589
Current redemption requirements for
preference stock included in current
liabilities.............................. (30,688) (30,688)
----------- -----------
$ 174,328 $ 217,901
----------- -----------
Company-Obligated Mandatorily Redeemable
Preferred Securities of Subsidiary Trusts
Holding Solely the Company's Subordinated
Debt Securities............................ $ 350,000 $ 200,000
----------- -----------
Long-Term Debt:
First mortgage bonds:
Maturing 1997 through 2002--5 3/8% to 9
3/8%................................... $ 1,060,000 $ 1,320,000
Maturing 2003 through 2012--3.70% to 8
3/8%................................... 1,440,400 1,440,400
Maturing 2013 through 2022--5.85% to 9
7/8%................................... 1,791,000 1,991,000
Maturing 2023--7 3/4% to 8 3/8%......... 560,000 560,000
----------- -----------
$ 4,851,400 $ 5,311,400
Sinking fund debentures, due 1999 through
2011--2 3/4% to 7 5/8%................... 100,298 105,164
Pollution control obligations, due 2007
through 2014--3.70% to 5 7/8%............ 142,200 142,200
Other long-term debt...................... 1,016,889 986,932
Current maturities of long-term debt
included in current liabilities.......... (501,445) (538,534)
Unamortized net debt discount and premium. (46,459) (49,558)
----------- -----------
$ 5,562,883 $ 5,957,604
----------- -----------
$11,460,702 $12,925,940
=========== ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
24
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED RETAINED EARNINGS (DEFICIT)
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Balance at Beginning of Year................ $1,157,956 $ 821,848 $ 517,335
Add--Net income (loss)...................... (773,773) 743,368 717,154
---------- ---------- ----------
$ 384,183 $1,565,216 $1,234,489
---------- ---------- ----------
Deduct--
Dividends declared on--
Common stock............................ $ 342,763 $ 342,732 $ 342,710
Preferred and preference stocks......... 60,159 64,095 66,855
Other capital stock transactions--net..... 433 433 3,076
---------- ---------- ----------
$ 403,355 $ 407,260 $ 412,641
---------- ---------- ----------
Balance at End of Year (Includes $384 mil-
lion of appropriated retained earnings at
December 31, 1997)......................... $ (19,172) $1,157,956 $ 821,848
========== ========== ==========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
25
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Cash Flow From Operating Activities:
Net income (loss)...................... $ (773,773) $ 743,368 $ 717,154
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization........ 1,032,331 988,944 948,683
Deferred income taxes and investment
tax credits--net.................... (348,889) 124,857 158,296
Extraordinary loss related to early
redemption of long-term debt........ -- -- 33,158
Extraordinary loss related to write-
off of certain net regulatory as-
sets................................ 810,335 -- --
Cumulative effect of a change in ac-
counting principle.................. (196,700) -- --
Loss on nuclear plant closure........ 885,611 -- --
Provisions for revenue refunds....... 45,470 -- --
Equity component of allowance for
funds used during construction...... (23,770) (20,776) (13,129)
Recovery of regulatory assets........ 15,272 15,272 15,272
Provisions/(payments) for liability
for separation costs--net........... 15,986 (29,888) 60,713
Net effect on cash flows of changes
in:
Receivables........................ 21,194 67,888 (169,211)
Coal and fuel oil.................. 19,698 (11,186) (20,304)
Materials and supplies............. 41,659 9,053 51,073
Accounts payable excluding nuclear
fuel lease principal payments and
separation costs--net............. 233,360 110,437 465,475
Accrued interest and taxes......... (6,465) (37,021) (5,765)
Other changes in certain current
assets and liabilities............ 38,873 13,765 26,555
Other--net........................... 177,918 105,543 160,726
----------- ----------- -----------
$ 1,988,110 $ 2,080,256 $ 2,428,696
----------- ----------- -----------
Cash Flow From Investing Activities:
Construction expenditures.............. $ (969,626) $ (949,871) $ (899,366)
Nuclear fuel expenditures.............. (185,373) (281,833) (289,118)
Sale of generating plant............... 60,791 -- --
Equity component of allowance for
funds used during construction........ 23,770 20,776 13,129
Contributions to nuclear
decommissioning funds................. (114,825) (119,281) (132,653)
Other investments and special depos-
its................................... (4,703) (52) 19,599
----------- ----------- -----------
$(1,189,966) $(1,330,261) $(1,288,409)
----------- ----------- -----------
Cash Flow From Financing Activities:
Issuance of securities--
Long-term debt....................... $ 297,663 $ 198,902 $ --
Company-obligated mandatorily redeem-
able preferred securities of
subsidiary trusts holding solely the
Company's subordinated debt
securities.......................... 150,000 -- 200,000
Capital stock........................ 288 669 112
Retirement and redemption of securi-
ties--
Long-term debt....................... (734,768) (431,985) (1,137,272)
Capital stock........................ (44,111) (44,513) (17,935)
Deposits and securities held for re-
tirement and redemption of securi-
ties.................................. -- -- 106
Premium paid on early redemption of
long-term debt........................ (9,500) -- (25,823)
Cash dividends paid on capital stock... (426,916) (424,764) (414,385)
Proceeds from sale/leaseback of nu-
clear fuel............................ 149,955 316,617 193,215
Nuclear fuel lease principal payments.. (166,411) (211,741) (237,845)
Increase (Decrease) in short-term
borrowings............................ 29,400 (139,400) 261,000
----------- ----------- -----------
$ (754,400) $ (736,215) $(1,178,827)
----------- ----------- -----------
Increase (Decrease) in Cash and Tempo-
rary Cash Investments.................. $ 43,744 $ 13,780 $ (38,540)
Cash and Temporary Cash Investments at
Beginning of Year...................... 28,890 15,110 53,650
----------- ----------- -----------
Cash and Temporary Cash Investments at
End of Year............................ $ 72,634 $ 28,890 $ 15,110
=========== =========== ===========
</TABLE>
The accompanying Notes to Financial Statements are an integral part of the
above statements.
26
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Corporate Structure. Unicom is the parent holding company of ComEd and other
unregulated subsidiaries.
Principles of Consolidation. The consolidated financial statements include
the accounts of ComEd, the Indiana Company and the Trusts. 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.
Use of Estimates. The preparation of financial statements in conformity with
GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
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 GAAP applicable
to rate-regulated enterprises for the non-generation portion of its business,
including the effects of the ratemaking process in accordance with SFAS No.
71, Accounting for the Effects of Certain Types of Regulation. Such effects on
the non-generation portion of its business concern mainly the time at which
various items enter into the determination of operating results in order to
follow the principle of matching costs with the applicable revenues collected
from or refunded to customers through future rates. See Note 2 for information
regarding the write-off of generation-related regulatory assets and
liabilities in December 1997.
ComEd's investment in generation-related net utility plant, including
construction work in progress and nuclear fuel and excluding the
decommissioning costs included in the accumulated provision for depreciation,
not subject to cost-based rate regulation, was $12.4 billion and $13.1 billion
at December 31, 1997 and 1996, respectively.
27
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
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, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1997 1996
---------- ----------
(THOUSANDS OF
DOLLARS)
<S> <C> <C>
Regulatory assets:
Deferred income taxes (1)............................... $ 785,354 $1,649,037
Deferred carrying charges (2)........................... -- 396,879
Nuclear decommissioning costs--Dresden Unit 1 (3)....... 268,369 174,621
Nuclear decommissioning costs--Zion Units 1 and 2 (4)... 579,777 --
Unamortized loss on reacquired debt (5)................. 51,735 148,380
Other................................................... -- 65,890
---------- ----------
$1,685,235 $2,434,807
========== ==========
Regulatory liabilities:
Deferred income taxes (1)............................... $ 698,750 $ 668,301
========== ==========
</TABLE>
- --------
(1) Recorded in compliance with SFAS No. 109, Accounting for Income Taxes.
(2) Recorded as authorized in the Remand Order.
(3) Amortized over the remaining current NRC license life of Dresden Station.
See "Depreciation and Decommissioning" below for additional information.
(4) Amortized over the remaining current NRC license life of Zion Station. See
"Depreciation and Decommissioning" below for additional information.
(5) Amortized over the remaining lives of the long-term debt issued to finance
the reacquisition. See "Loss on Reacquired Debt" below for additional
information.
The 1997 regulatory assets and liabilities' balances reflect the write-off
of generation-related regulatory assets and liabilities and the recording of
nuclear decommissioning costs for Zion Station. See "Depreciation and
Decommissioning" below and Note 2 for additional information.
Fuel Adjustment Clause. The FAC adopted by the ICC provided 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 had recorded
under or overrecoveries of allowable fuel and energy costs which, under the
clause, were recoverable or refundable in subsequent months. Pursuant to an
option contained in the 1997 Act, ComEd filed a tariff on December 16, 1997 to
eliminate its FAC as of January 1, 1997. See Note 2 for additional
information.
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 presently being recovered through
base rates. See Note 14 for additional information concerning the disposal of
spent nuclear fuel, the one-time fee and the interest accrual on the one-time
fee. Nuclear fuel expenses, including leased fuel costs and provisions for
spent nuclear fuel disposal costs, were $298 million, $354 million and $391
million for the years 1997, 1996 and 1995, respectively.
28
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
The balance of nuclear fuel, at amortized cost, on the Consolidated Balance
Sheets includes amounts to be recovered 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, 1997 and 1996, an asset related to the assessments of $156 million and
$168 million, respectively, was recorded. As of December 31, 1997 and 1996, a
corresponding liability of $144 million and $157 million, respectively, was
recorded, of which $16 million was included in other current liabilities on
the Consolidated Balance Sheets.
Coal Reserves. At December 31, 1997 and 1996, ComEd had coal reserves of
$282 million and $364 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 expects to recover from its
customers the costs of the coal reserves, as coal is used for the generation
of electricity, through base rates. Such fuel costs expected to be recovered
within one year, amounting to $87 million and $73 million at December 31, 1997
and 1996, respectively, have been included in current assets as prepayments
and other on the Consolidated Balance Sheets. ComEd expects to fully recover
the costs of the coal reserves before the year 2001. See Note 23 for
additional information concerning ComEd's coal commitments.
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, industrial and wholesale customers.
ComEd's electric service territory has an area of approximately 11,300 square
miles and an estimated population of approximately 8 million as of December
31, 1997. It includes the city of Chicago, an area of about 225 square miles
with an estimated population of approximately 3 million from which ComEd
derived approximately one-third of its ultimate consumer revenues in 1997.
ComEd had 3.4 million electric customers at December 31, 1997.
In 1997, ComEd changed its accounting method for revenue recognition to
record ComEd's revenues associated with service which has been provided to
customers but has not yet been billed at the end of each accounting period,
retroactive to January 1, 1997. See Note 3 for information regarding the
cumulative effect of a change in accounting principle on prior years and the
effect on the current year. See Note 2 for information regarding the expected
effects of the August 1, 1998 rate reduction and certain pricing experiments.
Depreciation and Decommissioning. Depreciation is provided on the straight-
line basis by amortizing the cost of depreciable plant and equipment over
estimated composite service lives. 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 3.36%, 3.25% and 3.14% for the years 1997, 1996 and 1995,
respectively, of average depreciable utility plant and equipment, including
the effects of additional depreciation on ComEd's nuclear generating units.
The annual rate for nuclear plant and equipment, excluding separately
collected decommissioning costs and additional depreciation, is 2.88%. The
additional depreciation on ComEd's nuclear generating units includes
depreciation recorded for the year 1997 related to its steam generators at
Byron Unit 1 and Braidwood Unit 1 of $59 million, which are expected to be
replaced prior to year-end 1998, and the 1996 additional depreciation
initiative of $30 million. See Note 4 for additional information on the 1996
additional depreciation initiative.
Nuclear plant decommissioning costs are accrued over the current NRC license
lives of the related nuclear generating units. The accrual is based on an
annual levelized cost of the unrecovered portion
29
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
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's method of
accounting for decommissioning costs. Dismantling is expected to occur
relatively soon after the end of the current NRC license life of each related
generating station. The accrual for decommissioning is based on the prompt
removal method authorized by NRC guidelines. ComEd's 10 operating units have
remaining current NRC license lives ranging from 8 to 30 years. ComEd's Zion
Station and its first nuclear unit, Dresden Unit 1, are retired and are
expected to be dismantled at the end of the current NRC license life of the
last unit at each of those stations, 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 $4.8
billion in current-year (1998) dollars, including a contingency allowance.
ComEd estimates that it will expend approximately $12.9 billion, including a
contingency allowance, for decommissioning costs primarily during the period
from 2007 through 2032. Such costs are expected to be funded by the 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 as well as changes in the assumptions used in
making such estimates, including changes in technology, available alternatives
for the disposal of nuclear waste and inflation.
Pursuant to the Rate Order, since 1995, ComEd has collected decommissioning
costs from its ratepayers in conjunction with a rider, which allows annual
adjustments to decommissioning cost collections outside the context of a
traditional rate proceeding. Recovery of decommissiong costs through the rider
will continue under the 1997 Act. The current estimated decommissioning costs
include 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. Under its most recent annual rider,
filed with the ICC on February 28, 1997, ComEd has proposed to decrease its
estimated annual decommissioning cost accrual from $108.8 million to $107.5
million. The reduction primarily reflects stronger than expected after-tax
returns on the external trust funds in 1996 and lower than expected escalation
in low-level waste disposal costs, partially offset by the higher current-year
cost estimates, which include a contingency allowance.
The proposed annual decommissioning cost accrual of $107.5 million was
determined using the following assumptions: the decommissioning cost estimate
of $4.8 billion in current-year (1998) dollars, after-tax earnings on the tax-
qualified and nontax-qualified decommissioning funds of 7.30% and 6.26%,
respectively, and an escalation rate for future decommissioning costs of 4.1%.
The annual accrual of $107.5 million provided over the current NRC license
lives of the nuclear plants, coupled with the expected fund earnings and
amounts previously recovered in rates, is expected to aggregate approximately
$12.9 billion.
For the 10 operating nuclear units, decommissioning costs are recorded as
portions of depreciation expense and accumulated provision for depreciation on
the Statements of Consolidated Operations and the Consolidated Balance Sheets,
respectively. As of December 31, 1997, the total decommissioning costs
included in the accumulated provision for depreciation were $1,570 million.
For
30
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
ComEd's retired nuclear unit, Dresden Unit 1, the total estimated liability at
December 31, 1997 in current-year (1998) dollars of $365 million was recorded
under nuclear decommissioning for retired plants and the unrecovered portion
of the liability of $268 million was recorded as a regulatory asset on the
Consolidated Balance Sheets. The increase from December 31, 1996 to December
31, 1997 in the total estimated liability related to Dresden Unit 1, and the
unrecovered portion of that liability, is due to higher current-year cost
estimates, which include a contingency allowance.
For ComEd's retired Zion nuclear station, the total estimated liability at
December 31, 1997 in current-year (1998) dollars of $936 million was recorded
under nuclear decommissioning for retired plants and the unrecovered portion
of the liability of $580 million was recorded as a regulatory asset on the
Consolidated Balance Sheets.
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
current NRC license lives of the nuclear plants. At December 31, 1997, the
past accruals that are required to be contributed to the external trusts
aggregate $167 million. The fair value of funds accumulated in the external
trusts at December 31, 1997 was $1,856 million, which includes pre-tax
unrealized appreciation of $429 million. The earnings on the external trusts
accumulate in the fund balance and accumulated provision for depreciation.
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.
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 basis and
the borrowed funds component of AFUDC is recorded on a pre-tax basis. The
average annual capitalization rates were 9.39%, 9.02% and 9.52% for the years
1997, 1996 and 1995, respectively. AFUDC does not contribute to the current
cash flow of ComEd. ComEd discontinued SFAS No. 71 regulatory accounting
practices in December 1997 for the generation portion of its business. As a
result, ComEd will not record AFUDC, but will capitalize interest costs on its
generation-related construction work in progress and nuclear fuel in process
beginning in 1998.
Interest. Total interest costs incurred on debt, leases and other
obligations were $588 million, $620 million and $693 million for the years
1997, 1996 and 1995, respectively.
Debt Discount, Premium and Expense. Discount, premium and expense on long-
term debt are being amortized over the lives of the respective issues.
Loss on Reacquired Debt. Consistent with regulatory treatment, the net loss
from reacquisition in connection with the refinancing of first mortgage bonds,
sinking fund debentures and pollution control
31
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
obligations prior to their scheduled maturity dates is deferred and amortized
over the lives of the long-term debt issued to finance the reacquisition for
non-generation related financings. See "Regulatory Assets and Liabilities"
above and Note 2 for additional information.
Stock Option Awards/Employee Stock Purchase Plan. ComEd has elected to adopt
SFAS No. 123, Accounting for Stock-Based Compensation, for disclosure purposes
only. ComEd accounts for its stock option awards and ESPP under APB Opinion
No. 25, Accounting for Stock Issued to Employees. See Note 8 for additional
information.
Energy Risk Management Contracts. In the normal course of business ComEd
utilizes contracts for the forward sale and purchase of energy to effectively
manage the utilization of its available generating capability. ComEd also
utilizes put and call option contracts and energy swap arrangements to limit
the market price risk associated with the forward commodity contracts. As
ComEd does not currently utilize financial or commodity instruments for
trading or speculative purposes, any gains or losses on forward commodity
contracts are recognized when the underlying transactions affect earnings.
Revenues and expenses associated with market price risk management contracts
are recognized immediately for contracts with terms of less than one year and
are amortized over the length of the term of contracts covering more than one
year.
Reclassifications. Certain prior year amounts have been reclassified to
conform with current period presentation. These reclassifications had no
effect on operating results.
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 years 1997, 1996
and 1995 was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Supplemental Cash Flow Information:
Cash paid during the year for:
Interest (net of amount capitalized)............ $502,260 $533,498 $604,202
Income taxes (net of refunds)................... $280,368 $238,920 $368,842
Supplemental Schedule of Non-Cash Investing and Fi-
nancing Activities:
Capital lease obligations incurred................ $158,412 $320,975 $198,577
</TABLE>
(2) ACCOUNTING EFFECTS RELATED TO THE 1997 ACT
On December 16, 1997, the Governor of Illinois signed into law the 1997 Act,
which, as it applies to ComEd, 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
15% residential base rate reduction, commencing on August 1, 1998, is expected
to reduce ComEd's operating revenues by approximately $160 million and $375
million in 1998 and 1999, respectively, compared to 1997 rate levels. ComEd is
engaged in certain pricing experiments contemplated by the 1997 Act, which are
expected to reduce its operating revenues by approximately $30 million and $60
million in 1998 and 1999, respectively, compared to 1997 rate levels,
notwithstanding the effects of customer growth.
32
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
The 1997 Act also provides for the collection of a CTC from customers who
choose another electric service provider during a transition period that
extends through 2006, and can be extended through 2008 with ICC approval if
certain factors are met. The CTC will be established in accordance with a
formula defined in the legislation. The CTC, which will be applied on a cents
per kilowatthour basis, considers the revenue which would have been collected
from a customer under tariffed rates, reduced by 1) the revenue the utility
will receive for providing delivery services to the customer, 2) the market
price for electricity and 3) a defined mitigation factor which represents the
utility's opportunity to develop new revenue sources and achieve cost savings.
Notwithstanding these rate reductions, and subject to certain earnings
tests, a rate freeze will generally be in effect until at least January 1,
2005. During this period utilities may reorganize, sell or assign assets,
retire or remove plants from service, and accelerate depreciation or
amortization of assets with limited ICC authority. Under the earnings
provision of the legislation, if the earned return on common equity of a
utility during this period exceeds an established threshold, a portion of the
excess earnings must be refunded to customers. A utility may request a rate
increase during the rate freeze period when necessary to ensure the utility's
financial viability, but not before January 1, 2000.
Under the 1997 Act, utilities are required to continue to offer delivery
services, including the transmission and distribution of electric energy, such
that customers who select an alternative energy supplier can receive electric
energy from that supplier using existing transmission and distribution
facilities. Such services will continue to be offered under cost-based
regulated rates. The 1997 Act also requires utilities to establish or join an
ISO that will independently manage and control utility transmission systems.
Additionally, the 1997 Act includes the option to eliminate the FAC, the
leveling of certain regulatory requirements to permit operational flexibility,
the leveling of certain regulatory and tax provisions as applied to various
electric suppliers, and a new more stringent liability standard applicable to
ComEd in the event of a major outage.
The 1997 Act also allows ComEd to unbundle a portion of its future revenues,
including tariffed and contract rates and CTC revenues and issue securities
backed by these revenues. The proceeds from such security issuances must
generally be used to refinance outstanding debt or equity or for certain other
limited purposes. The total amount of ComEd's revenues securitized cannot
exceed $6.5 billion; approximately one-half of that amount can be issued in
the twelve-month period commencing on August 1, 1998.
As a result of the 1997 Act, 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 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.
Because the 1997 Act is expected ultimately to lead to market-based pricing
of electric generation services, ComEd discontinued SFAS No. 71 regulatory
accounting practices for the generation portion of its business in December
1997. ComEd 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
33
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
recovered through the cash flows from the regulated portion of its business.
Accordingly, the generation-related regulatory assets and liabilities were
written off in the fourth quarter of 1997, resulting in a charge of $810
million (after-tax). 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 carrying
charges on the Byron Unit 2 and Braidwood Units 1 and 2 nuclear generating
plants, generation-related unamortized loss on reacquired debt and other
miscellaneous generation-related costs. The regulatory asset for the
unrecovered nuclear decommissioning costs of currently retired nuclear plants
was not written off, as the 1997 Act provides for the ongoing recovery of
decommissioning costs through regulated rates. See "Regulatory Assets and
Liabilities" and "Depreciation and Decommissioning" in Note 1 of Notes to
Financial Statements.
Pursuant to an option contained in the 1997 Act, ComEd filed a tariff on
December 16, 1997 to eliminate its FAC as of January 1, 1997. Under ComEd's
regulated rates, the FAC provided 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.
Elimination of the FAC requires ComEd to refund to customers any net FAC
charges billed from January 1, 1997 through December 31, 1997. Such FAC
charges were $25 million (after-tax). These costs, as well as deferred
underecovered energy costs of $19 million (after- tax) which ComEd would have
been entitled to recover if the FAC had remained in effect, were recorded as a
reduction to operating results in 1997.
Additionally, elimination of the FAC and a transition to market-based
pricing for generation-related costs required 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 resulted in a charge of $60 million (after-tax) in December
1997.
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of, which was adopted on January 1, 1996,
established accounting standards for the impairment of long-lived assets,
i.e., determining whether the costs of such assets are recoverable through
future revenues. SFAS No. 121 also requires that regulatory assets, which are
no longer probable of recovery through future revenue, be charged to
operations. ComEd evaluated whether the recoverability of the costs of its
generating stations has been impaired as defined in SFAS No. 121. 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. Notwithstanding the retirement and write-off of Zion
Station, as discussed in Note 5, ComEd has concluded, as a result of these
studies, that impairment, as defined in SFAS No. 121, does not currently exist
and that asset write downs are not 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 additional generating plants prior to expected
retirement dates, further write-offs will be required.
(3) CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE
ComEd changed its accounting method for revenue recognition to record
revenues associated with service which has been provided to customers but has
not yet been billed at the end of each accounting period, retroactive to
January 1, 1997. This change in accounting method increased operating results
by $170 million (after-tax), consisting of a one-time cumulative effect of the
change
34
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
for years prior to 1997 of $197 million (after-tax), less the impact of the
change on 1997 results of $27 million (after-tax). The following pro forma
information reflects the financial results for the years 1997, 1996 and 1995
as if the new accounting method had been used in such periods (unaudited):
<TABLE>
<CAPTION>
1997 1996 1995
----------- -------- --------
(THOUSANDS EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Net Income (Loss) Before Extraordinary Items and
Cumulative Effect of Change in Accounting Prin-
ciple.......................................... $ (160,138) $775,497 $760,331
Net Income (Loss) on Common Stock............... $(1,030,959) $711,073 $670,348
</TABLE>
(4) RATE MATTERS
In January 1995, the ICC issued its Rate Order in the proceedings relating
to ComEd's February 1994 rate increase request. The Rate Order provided, among
other things, for an increase in ComEd's total revenues of approximately $302
million (excluding add-on revenue taxes), on an annual basis. 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. The Rate Order was appealed by intervenors and ComEd to the Illinois
Appellate Court, which issued a decision on May 30, 1997 affirming the Rate
Order in all respects with the exception of two issues, which it remanded to
the ICC for the purpose of providing further analysis. Those issues relate to:
(i) the manner in which certain costs are recovered and which customers should
pay those costs, and (ii) the proper rate of return on common equity for
ComEd. ComEd believes that the ICC can satisfy the Appellate Court's remand
directions on the basis of the existing record from the ICC proceedings which
led to the Rate Order. The Appellate Court's decision was not appealed and the
matter was returned to the ICC, where a decision is expected early in the
second quarter of 1998.
With respect to the first issue remanded to the ICC, ComEd does not believe
it will have any effect on the overall level of rates. With respect to the
rate of return on common equity issue, the ICC had determined in the Rate
Order that ComEd's cost of common equity was 12.28%. Intervenors had submitted
testimony recommending a return on common equity of 11.50%. The Appellate
Court decision requires the ICC to clarify the basis for certain of its
findings relating to its rejection of the intervenors' recommendation and to
analyze further how it arrived at its conclusions. The Appellate Court stated
that after reanalyzing these bases the ICC can determine whether or not the
cost of common equity determination it adopted should still be followed. Each
tenth of one percent change in the rate of return on common equity has
approximately an $8 million effect on the level of annual revenues. The
Appellate Court's decision does not have any immediate effect on ComEd's rates
or require any refunds. In connection with the initiation of the appeal, ComEd
committed to make refunds "in the event that a final, non-appealable order is
entered reversing the ICC's Rate Order." Revenues of approximately $195
million would be subject to refund if the ICC were to adopt the lower rate of
return on common equity recommended by intervenors. An ICC Hearing Examiner
issued a proposed order in January 1998, which if adopted by the ICC, would
uphold the Rate Order and the associated $302 million revenue increase on an
annual basis.
ComEd's costs increased by $30 million in 1996 (before income tax effects)
for an increase in depreciation charges on its nuclear generating units
related to its additional depreciation initiative in 1996. See Note 1 under
"Depreciation and Decommissioning" for information concerning additional
depreciation charges related to ComEd's steam generators at Byron Unit 1 and
Braidwood Unit 1.
See Note 2 for information regarding the 1997 Act.
35
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(5) CLOSURE AND SALE OF PLANTS
On January 14, 1998, the Boards of Directors of Unicom and ComEd authorized
the permanent cessation of nuclear generation operations and retirement of
facilities at ComEd's 2,080 megawatt Zion nuclear generating station. Such
retirement resulted in a charge for 1997 of $523 million (after-tax). The
decision to close Zion Station was a result of an ongoing analysis, which
ComEd performed regarding the economic value of its generating assets in light
of the expected changes in the manner in which electric energy is marketed and
sold. The passage of the 1997 Act provided a clearer basis for evaluating the
costs and benefits of alternative courses of action. In reaching the decision
to cease nuclear generation operations at Zion Station, the Boards also
considered the significant uncertainty associated with continued operation of
the station due to the degradation of the steam generators, and the expected
operating costs associated with continued station operation.
ComEd's fourth quarter 1997 financial results reflected a charge of $406
million (after-tax) representing the undepreciated costs of Zion Station
(excluding the portion which will remain in use to provide voltage support),
materials and supplies inventories, and nuclear fuel inventories. In addition,
as required by GAAP, a liability for future closing costs associated with the
retirement of Zion Station, excluding severance costs, was recorded resulting
in a charge of $117 million (after-tax) in the fourth quarter of 1997.
In April 1996, ComEd announced that it had finalized agreements to sell 2 of
its coal-fired generating stations, representing 1,600 megawatts of generating
capacity. Under the agreements, State Line and Kincaid stations are expected
to be sold for a total of $250 million, which approximates the book value of
the stations. The net proceeds are expected to be approximately $200 million
(after-tax), which will be used to retire or redeem existing debt. Under the
terms of the sales, ComEd will enter into exclusive 15-year purchased power
agreements for the output of the plants. On March 31, 1997, the ICC issued an
order approving the agreements. A subsequent appeal has been dropped by the
intervening parties. The sale of State Line Station for its approximate book
value was finalized in December 1997. The net proceeds of the sale, after
income tax effects and closing costs, were approximately $56 million. The
Kincaid Station sale is expected to be finalized during the first quarter of
1998.
(6) AUTHORIZED SHARES AND VOTING RIGHTS OF CAPITAL STOCK
At December 31, 1997, the authorized shares of capital stock were: common
stock--250,000,000 shares; preference stock--22,368,560 shares; $1.425
convertible preferred stock--65,912 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.
(7) COMMON EQUITY
At December 31, 1997, shares of common stock were reserved for the following
purposes:
<TABLE>
<S> <C>
Conversion of $1.425 convertible preferred stock................... 67,230
Conversion of warrants............................................. 25,622
------
92,852
======
</TABLE>
36
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
Common stock for the years 1997, 1996 and 1995 was issued as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----- ------ -----
<S> <C> <C> <C>
Conversion of $1.425 convertible preferred stock...... 9,261 22,146 3,630
Conversion of warrants................................ 362 1,358 299
----- ------ -----
9,623 23,504 3,929
===== ====== =====
</TABLE>
At December 31, 1997 and 1996, 76,868 and 78,045 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.
ComEd's retained earnings account had a deficit balance of $19.2 million at
December 31, 1997. As of December 31, 1997, $384 million of retained earnings
has been appropriated for future dividend payments.
(8) STOCK OPTION AWARDS/EMPLOYEE STOCK PURCHASE PLAN
Unicom has a nonqualified stock option awards program under its Long-Term
Incentive Plan. The stock option awards program was adopted by Unicom in July
1996 to reward valued employees responsible for, or contributing to, the
management, growth and profitability of Unicom and its subsidiaries. The stock
options granted will expire ten years from the grant date. One-third of the
shares subject to the options vest on each of the first three anniversaries of
the option grant date. In addition, the stock options will become fully vested
immediately if the holder dies, retires, is terminated by the Company other
than for cause or qualifies for long-term disability and will also vest in
full upon a change in control of Unicom.
Stock options transactions for the years 1997 and 1996 are summarized as
follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
OPTIONS PRICE
--------- --------
<S> <C> <C>
Outstanding at the beginning of 1996.................. -- $ --
Granted during the year............................... 1,205,500 25.500
Expired/cancelled during the year..................... (17,500) 25.500
---------
Outstanding as of December 31, 1996................... 1,188,000 25.500
Granted during the year............................... 1,339,350 22.313
Exercised during the year............................. (23,423) 25.500
Expired/cancelled during the year..................... (213,549) 23.649
---------
Outstanding as of December 31, 1997................... 2,290,378 23.809
=========
</TABLE>
Of the stock options outstanding at December 31, 1997, 426,174 have vested
at a weighted average price of $25.455.
The fair value of each stock option is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions:
<TABLE>
<CAPTION>
STOCK OPTION
GRANT DATE
---------------
1997 1996
------- -------
<S> <C> <C>
Expected option life...................................... 7 years 7 years
Dividend yield............................................ 7.20% 6.30%
Expected volatility....................................... 22.29% 20.98%
Risk-free interest rate................................... 6.25% 6.64%
</TABLE>
37
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
The estimated fair value for each stock option granted in 1997 and 1996 was
$2.79 and $3.74, respectively.
The ESPP allows employees to purchase Unicom common stock at a 10% discount
from market value. Substantially all of the employees of Unicom, ComEd and
certain subsidiaries are eligible to participate in the ESPP. Unicom issued
196,003, 196,513 and 217,080 shares of common stock in 1997, 1996 and 1995,
respectively, under the ESPP at a weighted average annual purchase price of
$19.15, $23.52 and $25.34, respectively.
ComEd has adopted the disclosure-only provisions of SFAS No. 123. For
financial reporting purposes, ComEd has adopted APB No. 25 and thus no
compensation cost has been recognized for the stock option awards program or
ESPP. If ComEd had recorded compensation expense for the stock options granted
and the shares of common stock issued under the ESPP in accordance with SFAS
No. 123 using the fair value based method of accounting, the effect on
operating results would have been immaterial.
(9) PREFERRED AND PREFERENCE STOCKS WITHOUT MANDATORY REDEMPTION REQUIREMENTS
No shares of preferred or preference stocks without mandatory redemption
requirements were issued or redeemed during 1997, 1996 and 1995. The series of
preference stock without mandatory redemption requirements outstanding at
December 31, 1997 are summarized as follows:
<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 $1.425 convertible preferred stock are convertible
at the option of the holders thereof, at any time, into common stock at the
rate of 1.02 shares of common stock for each share of convertible preferred
stock, subject to future adjustment. The convertible preferred stock may be
redeemed by 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.
38
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(10) PREFERENCE STOCK SUBJECT TO MANDATORY REDEMPTION REQUIREMENTS
During 1997, 1996 and 1995, no shares of preference stock subject to
mandatory redemption requirements were issued. The series of preference stock
subject to mandatory redemption requirements outstanding at December 31, 1997
are summarized as follows:
<TABLE>
<CAPTION>
SHARES AGGREGATE
SERIES OUTSTANDING STATED VALUE OPTIONAL REDEMPTION PRICE(1)
- -------------- ----------- ------------ -----------------------------------------------
(THOUSANDS
OF DOLLARS)
<S> <C> <C> <C>
$8.20 178,560 $ 17,856 $101
$8.40 Series B 300,000 29,798 $101
$8.85 225,000 22,500 $103 through July 31, 1998; and $101 thereafter
$9.25 525,000 52,500 $103 through July 31, 1999; and $101 thereafter
$9.00 130,000 12,887 Non-callable
$6.875 700,000 69,475 Non-callable
--------- --------
2,058,560 $205,016
========= ========
</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 preference stock
subject to mandatory redemption requirements are summarized as follows:
<TABLE>
<CAPTION>
SINKING
ANNUAL SINKING FUND INVOLUNTARY
SERIES 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(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.
Annual remaining sinking fund requirements through 2002 on preference stock
outstanding at December 31, 1997 will aggregate $31 million in 1998, $18
million in 1999, $88 million in 2000, and $18 million in each of 2001 and
2002. During each of 1997 and 1996 438,215 shares and during 1995 178,215
shares of preference stock subject to mandatory redemption requirements were
reacquired to meet sinking fund requirements.
Sinking fund requirements due within one year are included in current
liabilities.
(11) COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF
SUBSIDIARY TRUSTS HOLDING SOLELY THE COMPANY'S SUBORDINATED DEBT
SECURITIES
In September 1995, ComEd Financing I, a wholly-owned subsidiary trust of
ComEd, issued 8,000,000 of its 8.48% company-obligated mandatorily redeemable
preferred securities. The sole asset of the ComEd Financing I is $206.2
million principal amount of ComEd's 8.48% subordinated deferrable interest
notes due September 30, 2035. In January 1997, ComEd Financing II, a wholly-
39
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
owned subsidiary trust of ComEd, issued 150,000 of its 8.50% company-obligated
mandatorily redeemable capital securities. The sole asset of ComEd Financing
II is $154.6 million principal amount of ComEd's 8.50% subordinated deferrable
interest debentures due January 15, 2027. There is a full and unconditional
guarantee by ComEd of the Trusts' obligations under the securities issued by
the Trusts. 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. Similarly, ComEd has the right to defer payments of interest on the
subordinated deferrable interest debentures by extending the interest payment
period, at any time, for up to 10 consecutive semi-annual periods. If interest
payments on the subordinated deferrable interest notes or debentures 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, and with
respect to the subordinate deferrable interest debentures, on or after January
15, 2007, or at any time in the event of certain income tax circumstances. If
the subordinated deferrable interest notes or debentures are redeemed, the
Trusts must redeem preferred securities having an aggregate liquidation amount
equal to the aggregate principal amount of the subordinated deferrable
interest notes or debentures so redeemed. In the event of the dissolution,
winding up or termination of the Trusts, the holders of the preferred
securities will be entitled to receive, for each preferred security, a
liquidation amount of $25 for the securities of ComEd Financing I and $1,000
for the securities of ComEd Financing II, 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 or debentures are distributed to the holders of the preferred
securities.
(12) LONG-TERM DEBT
Sinking fund requirements and scheduled maturities remaining through 2002
for first mortgage bonds, sinking fund debentures and other long-term debt
outstanding at December 31, 1997, after deducting sinking fund debentures
reacquired for satisfaction of future sinking fund requirements, are
summarized as follows: 1998--$503 million; 1999--$150 million; 2000--$462
million; 2001--$108 million; and 2002--$305 million.
At December 31, 1997, outstanding first mortgage bonds maturing through 2002
were as follows:
<TABLE>
<CAPTION>
SERIES PRINCIPAL AMOUNT
------ ----------------------
(THOUSANDS OF DOLLARS)
<S> <C>
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
9 3/8% due February 15, 2000...................... 125,000
6 1/2% due April 15, 2000......................... 230,000
6 3/8% due July 15, 2000.......................... 100,000
7 1/2% due January 1, 2001........................ 100,000
7 3/8% due September 15, 2002..................... 200,000
----------
$1,060,000
==========
</TABLE>
40
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
Other long-term debt outstanding at December 31, 1997 is summarized as
follows:
<TABLE>
<CAPTION>
PRINCIPAL
DEBT SECURITY AMOUNT INTEREST RATE
------------- ---------- ------------------------------------------------------
(THOUSANDS
OF
DOLLARS)
<S> <C> <C>
Notes:
Medium Term
Notes, Se-
ries 1N due
various
dates
through
April 1,
1998 $ 35,500 Interest rates ranging from 9.52% to 9.65%
Medium Term
Notes, Se-
ries 3N due
various
dates
through
October 15,
2004 296,000 Interest rates ranging from 9.00% to 9.20%
Notes due 150,000 Interest rate of 7.375%
January 15,
2004
Notes due 235,000 Interest rate of 6.40%
October 15,
2005
Notes due 150,000 Interest rate of 7.625%
January 15,
2007
----------
$ 866,500
----------
Long-Term
Note Payable
to Bank
due June 1, $ 150,000 Prevailing interest rate of 6.53% at December 31, 1997
1998
----------
Purchase Con-
tract Obli-
gation
due April
30, 2005 $ 389 Interest rate of 3.00%
----------
$1,016,889
==========
</TABLE>
Long-term debt maturing within one year has been included in current
liabilities.
The outstanding first mortgage bonds are secured by a lien on substantially
all property and franchises, other than expressly excepted property, owned by
ComEd.
ComEd recorded an extraordinary loss of $33 million in the fourth quarter of
1995 related to the early redemption of $645 million of long-term debt which
resulted in a charge of $20 million, after reflecting income tax effects of
$13 million.
(13) LINES OF CREDIT
ComEd had total bank lines of credit of $766 million and unused bank lines
of credit of $758 million at December 31, 1997. Of that amount, $758 million
(of which $146 million expires on September 27, 1998, $27 million expires in
equal quarterly installments commencing on March 31, 1998 and ending on
September 30, 1998 and $585 million expires in equal quarterly installments
commencing on March 31, 1998 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 the credit rating of
ComEd's outstanding first mortgage bonds 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 the unused portion of such lines of credit.
41
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(14) 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. The DOE advised ComEd in
December 1996 that it anticipated it would be unable to begin acceptance of
spent nuclear fuel by January 1998. It is expected this delivery schedule will
be delayed significantly. 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 $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
on the Consolidated Balance Sheets.
(15) 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 ComEd 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 ComEd and subsidiary companies is in part
dependent on the treatment authorized under future ratemaking proceedings.
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, 1997 and 1996 was as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
-------------------------------- --------------------------------
UNREALIZED
UNREALIZED GAINS
COST BASIS GAINS FAIR VALUE COST BASIS (LOSSES) FAIR VALUE
---------- ---------- ---------- ---------- ---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Short-term investments.. $ 33,524 $ 2 $ 33,526 $ 32,778 $ 38 $ 32,816
U.S. Government and
Agency issues.......... 170,240 15,882 186,122 251,994 6,885 258,879
Municipal bonds......... 306,104 20,598 326,702 331,936 17,985 349,921
Corporate bonds......... 231,738 4,293 236,031 22,405 (54) 22,351
Common stock............ 667,657 385,851 1,053,508 539,392 201,304 740,696
Other................... 17,300 2,508 19,808 47,462 4,235 51,697
---------- -------- ---------- ---------- -------- ----------
$1,426,563 $429,134 $1,855,697 $1,225,967 $230,393 $1,456,360
========== ======== ========== ========== ======== ==========
</TABLE>
At December 31, 1997, 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....................................... $ 33,699 $ 33,702
1 through 5 years................................... 162,558 166,427
5 through 10 years.................................. 219,201 232,508
Over 10 years....................................... 335,538 359,411
</TABLE>
42
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
The net earnings of the nuclear decommissioning funds, which are recorded as
increases to the accumulated provision for depreciation, for the years 1997,
1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Gross proceeds from sales of securi-
ties.................................. $ 2,163,522 $ 2,335,974 $ 2,598,889
Less cost based on specific identifica-
tion.................................. (2,088,300) (2,300,038) (2,581,714)
----------- ----------- -----------
Realized gains on sales of securities.. $ 75,222 $ 35,936 $ 17,175
Other realized fund earnings net of ex-
penses................................ 39,123 33,008 46,294
----------- ----------- -----------
Total realized net earnings of the
funds................................. $ 114,345 $ 68,944 $ 63,469
Unrealized gains....................... 198,741 65,516 160,843
----------- ----------- -----------
Total net earnings of the funds....... $ 313,086 $ 134,460 $ 224,312
=========== =========== ===========
</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 preferred and preference
stocks, company-obligated mandatorily redeemable preferred securities of the
Trusts and long-term debt were obtained 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, as of December 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
-------------------------------- --------------------------------
CARRYING UNREALIZED CARRYING UNREALIZED
VALUE LOSSES FAIR VALUE VALUE LOSSES FAIR VALUE
---------- ---------- ---------- ---------- ---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C>
Preferred and preference
stocks................. $ 712,069 $ 11,970 $ 724,039 $ 755,931 $ 3,948 $ 759,879
Company-obligated
mandatorily redeemable
preferred securities of
the Trusts holding
solely ComEd's
subordinated debt
securities............. $ 350,000 $ 21,701 $ 371,701 $ 200,000 $ 1,000 $ 201,000
Long-term debt.......... $5,913,942 $380,890 $6,294,832 $6,345,533 $159,818 $6,505,351
</TABLE>
Long-term notes payable, which are not included in the above table, amounted
to $150 million at December 31, 1997 and 1996. Such notes, for which interest
is paid at fixed and 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
commercial paper and 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, 1997 and 1996; therefore, the carrying value is equal to the fair
value.
43
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(16) PENSION BENEFITS
As of December 31, 1997, ComEd and the Indiana Company had qualified 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. During 1995, these plans were amended to more
closely base retirement benefits on final pay. 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, 1997 and 1996 pension liabilities and related data were determined using
the January 1, 1997 actuarial valuation. Additionally, ComEd maintains a
nonqualified supplemental retirement plan which covers any excess pension
benefits that would be payable to management employees under the qualified
plan but which are limited by the Internal Revenue Code. On January 19, 1998,
the Indiana Company plan was merged into the ComEd pension plan as a result of
the sale of the Indiana Company's State Line Station.
The funded status of these plans, including the supplemental plan, at
December 31, 1997 and 1996 was as follows:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1997 1996
----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Actuarial present value of accumulated pension plan
benefits:
Vested benefit obligation.......................... $(3,472,000) $(3,075,000)
Nonvested benefit obligation....................... (140,000) (118,000)
----------- -----------
Accumulated benefit obligation..................... $(3,612,000) $(3,193,000)
Effect of projected future compensation levels..... (462,000) (386,000)
----------- -----------
Projected benefit obligation....................... $(4,074,000) $(3,579,000)
Fair value of plan assets, invested primarily in
U.S. Government, government-sponsored corporation
and agency securities, fixed income funds, regis-
tered investment companies, equity index funds and
other equity and fixed income funds................ 3,706,000 3,281,000
----------- -----------
Plan assets less than projected benefit obligation.. $ (368,000) $ (298,000)
Unrecognized prior service cost..................... (64,000) (69,000)
Unrecognized transition asset....................... (114,000) (130,000)
Unrecognized net loss............................... 132,000 113,000
----------- -----------
Accrued pension liability.......................... $ (414,000) $ (384,000)
=========== ===========
</TABLE>
The fair value of plan assets excludes $17 million held in grantor trust as
of December 31, 1997 for payments of benefits under the supplemental plan.
The assumed discount rate was 7.0% and 7.5% at December 31, 1997 and 1996,
respectively, 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 projected unit credit actuarial cost
method and the following actuarial assumptions for the years 1997, 1996 and
1995:
<TABLE>
<CAPTION>
1997 1996 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................ 9.75% 9.75% 9.75%
</TABLE>
44
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
The components of pension costs, portions of which were recorded as
components of construction costs, for the years 1997, 1996 and 1995 were as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- --------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Service cost.................................... $100,000 $ 93,000 $ 87,000
Interest cost on projected benefit obligation... 261,000 247,000 226,000
Actual return on plan assets.................... (630,000) (421,000) (681,000)
Curtailment gain................................ (5,000) -- --
Net amortization and deferral................... 305,000 117,000 419,000
-------- --------- ---------
$ 31,000 $ 36,000 $ 51,000
======== ========= =========
</TABLE>
The curtailment gain for the year 1997 represents the recognition of prior
service costs, the transition asset and the decrease in the projected benefit
obligation related to the sale of the State Line Station by the Indiana
Company.
In addition, an employee savings and investment plan is available to
eligible employees of ComEd and certain of its and Unicom's subsidiaries.
Under the plan, each participating employee may contribute up to 20% of such
employee's base pay. The participating companies match the first 6% of such
contribution equal to 100% of the first 2% of contributed base salary, 70% of
the next 3% of contributed base salary and 25% of the next 1% of contributed
base salary. The participating companies' contributions were $33 million,
$30 million and $25 million for the years 1997, 1996 and 1995, respectively.
(17) POSTRETIREMENT BENEFITS
ComEd and the Indiana Company provide certain postretirement health care,
dental care, vision care and life insurance for retirees and their dependents
and for the surviving dependents of eligible employees and retirees. The
employees become eligible for postretirement benefits when they reach age 55
with 10 years of service. The liability for postretirement benefits is funded
through trust funds based upon actuarially determined contributions that take
into account the amount deductible for income tax purposes. The plan is
contributory, funded jointly by the companies and the participating employees.
The December 31, 1997 and 1996 postretirment benefit liabilities and related
data were determined using the January 1,1997 actuarial valuations.
Postretirement health care costs for the years 1997, 1996 and 1995 included
$8 million, $4 million and $25 million, respectively, related to voluntary
separation offers to certain employees of ComEd and the Indiana Company.
The funded status of the plan at December 31, 1997 and 1996 was as follows:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1997 1996
----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Actuarial present value of accumulated
postretirement benefit obligation:
Retirees........................................... $ (573,000) $ (558,000)
Active fully eligible participants................. (28,000) (28,000)
Other participants................................. (483,000) (449,000)
----------- -----------
Accumulated benefit obligation..................... $(1,084,000) $(1,035,000)
Fair value of plan assets, invested primarily in S&P
500 common stocks, registered investment companies
and U.S. Government, government agency, municipal
and listed corporate obligations................... 768,000 665,000
----------- -----------
Plan assets less than accumulated postretirement
benefit obligation................................. $ (316,000) $ (370,000)
Unrecognized transition obligation.................. 345,000 370,000
Unrecognized prior service cost..................... 52,000 56,000
Unrecognized net gain............................... (406,000) (323,000)
----------- -----------
Accrued liability for postretirement benefits...... $ (325,000) $ (267,000)
=========== ===========
</TABLE>
45
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
Different health care cost trends are used for pre-Medicare and post-
Medicare expenses. The pre-Medicare trend rates were 8.5% and 9.0% at December
31, 1997 and 1996, respectively, grading down in 0.5% annual increments and
leveling off at 5.0%. The post-Medicare trend rates were 6.5% and 7.0% at
December 31, 1997 and 1996, respectively, grading down in 0.5% annual
increments to 5.0%. The assumed discount rates were 7.0% and 7.5% at December
31, 1997 and 1996, respectively, which were used to determine the accumulated
benefit obligations. The effect of a 1% increase in the health care cost trend
rate for each future year would increase the accumulated postretirement health
care obligations by approximately $187 million.
The components of postretirement health care costs, portions of which were
recorded as components of construction costs, for the years 1997, 1996 and
1995 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Service cost............................. $ 34,000 $ 32,000 $ 31,000
Interest cost on accumulated benefit ob-
ligation................................ 76,000 73,000 69,000
Actual return on plan assets............. (130,000) (83,000) (137,000)
Amortization of transition obligation.... 22,000 22,000 23,000
Severance plan cost...................... 8,000 4,000 25,000
Other.................................... 60,000 22,000 83,000
--------- -------- ---------
$ 70,000 $ 70,000 $ 94,000
========= ======== =========
</TABLE>
Postretirement benefit costs were determined using the projected unit credit
actuarial cost method. The discount rates used were 7.5% for the years 1997
and 1996 and 8.0% for the year 1995 and the estimated long-term rate of return
of fund assets, net of income tax effects, were 9.40%, 9.38% and 9.32% for the
years 1997, 1996 and 1995, respectively. Pre-Medicare health care cost trend
rates were 13.5% for the first three months of 1995 and 10% for the remainder
of the year, grading down in 0.5% annual increments to 5.0%. Post-Medicare
health care cost trend rates were 11% for the first three months of 1995 and
8% for the remainder of the year, grading down in 0.5% annual increments to
5.0%. The effect of a 1% increase in the health care cost trend rate for each
future year would increase the aggregate of the service and interest cost
components of postretirement benefit costs by approximately $21 million for
1997.
(18) SEPARATION PLAN COSTS
O&M expenses included $39 million, $12 million and $97 million for the years
1997, 1996 and 1995, respectively, for costs related to voluntary separation
offers to certain employees of ComEd and the Indiana Company. Such costs
resulted in charges (after-tax) of $24 million, $7 million and $59 million for
the years 1997, 1996 and 1995, respectively.
46
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
(19) INCOME TAXES
The components of the net deferred income tax liability at December 31, 1997
and 1996 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1997 1996
---------- ----------
(THOUSANDS OF
DOLLARS)
<S> <C> <C>
Deferred income tax liabilities:
Accelerated cost recovery and liberalized deprecia-
tion, net of removal costs........................... $4,051,191 $3,507,916
Overheads capitalized................................. 131,509 261,437
Repair allowance...................................... 231,697 228,426
Regulatory assets recoverable through future rates.... 785,354 1,649,037
Deferred income tax assets:
Postretirement benefits............................... (305,220) (269,153)
Unbilled revenues..................................... -- (136,406)
Alternative minimum tax............................... -- (80,159)
Unamortized investment tax credits.................... (206,112) (225,360)
Regulatory liabilities to be settled through future
rates................................................ (698,750) (442,941)
Nuclear plant closure................................. (194,244) --
Other--net............................................ (135,311) (43,882)
---------- ----------
Net deferred income tax liability...................... $3,660,114 $4,448,915
========== ==========
</TABLE>
The $789 million decrease in the net deferred income tax liability from
December 31, 1996 to December 31, 1997 is comprised of $376 million of
deferred income tax benefits reflected in operations, a $315 million decrease
for an adjustment associated with the write-off of the generation-related net
regulatory assets and a $98 million decrease in other regulatory assets net of
regulatory liabilities pertaining to income taxes for the year. 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 years 1997, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Electric operating income:
Current income taxes.......................... $ 279,636 $339,517 $344,221
Deferred income taxes......................... 58,655 156,261 188,008
Investment tax credits deferred--net.......... (31,015) (33,378) (28,710)
Other (income) and deductions, primarily de-
ferred income taxes in 1997................... (407,624) (7,383) (7,685)
--------- -------- --------
Net income taxes charged (credited) to continu-
ing operations................................ $(100,348) $455,017 $495,834
========= ======== ========
</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 years 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
--------- ---------- ----------
<S> <C> <C> <C>
Pre-tax book income (loss) (thousands)....... $(260,486) $1,198,385 $1,233,010
Effective income tax rate.................... 38.5% 38.0% 40.2%
</TABLE>
47
<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 years 1997, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Federal income taxes computed at statutory rate. $ (91,170) $419,435 $431,554
Equity component of AFUDC which was excluded
from taxable income............................ (8,320) (7,272) (4,595)
Amortization of investment tax credits.......... (53,541) (33,378) (28,710)
State income taxes, net of federal income taxes. 3,470 58,381 65,972
Differences between book and tax accounting,
primarily property-related deductions.......... 51,465 14,150 27,534
Other--net...................................... (2,252) 3,701 4,079
--------- -------- --------
Net income taxes charged (credited) to continu-
ing operations................................. $(100,348) $455,017 $495,834
========= ======== ========
</TABLE>
The effects of an income tax refund related to prior years were recorded in
1996, resulting in a positive impact of $26 million (after-tax).
(20) TAXES, EXCEPT INCOME TAXES
Provisions for taxes, except income taxes, for the years 1997, 1996 and 1995
were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Illinois public utility revenue............... $228,350 $227,062 $229,546
Illinois invested capital..................... 99,503 104,663 106,830
Municipal utility gross receipts.............. 168,094 168,715 167,758
Real estate................................... 150,179 129,985 175,747
Municipal compensation........................ 78,286 78,544 78,602
Other--net.................................... 74,755 73,699 73,543
-------- -------- --------
$799,167 $782,668 $832,026
======== ======== ========
</TABLE>
ComEd's real estate taxes in 1996 reflect a credit of $23 million which
related to the year 1995.
(21) 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/bank borrowings and $400
million of intermediate term notes, to finance the transactions. The
commercial paper/bank borrowing portion of $300 million will expire on
November 23, 1999. With respect to the intermediate term notes, $74 million
expires on November 23, 1998, and an additional portion each November 23
thereafter through November 23, 2003. At December 31, 1997, ComEd's obligation
to the lessor for leased nuclear fuel amounted to approximately $679 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 December 31, 1997
for capital leases are estimated to aggregate $777 million, including $268
million in 1998, $167 million in 1999, $125 million in 2000, $81 million in
2001, $56 million in 2002 and $80 million in 2003-2005. The estimated interest
component of such rental payments aggregates $100 million. The estimated
portions of obligations due within one year under capital leases of $114
million and $174 million at December 31, 1997 and 1996, respectively, are
included in current liabilities on the Consolidated Balance Sheets.
48
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
Future minimum rental payments at December 31, 1997 for operating leases are
estimated to aggregate $166 million, including $21 million in 1998, $19
million in 1999, $15 million in 2000, $14 million in 2001, $10 million in 2002
and $87 million in 2003-2024.
(22) 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 and
O&M accounts, and provides its own financing. At December 31, 1997, for its
share of ownership in the station, ComEd had an investment of $669 million in
production and transmission plant in service (before a reduction of $209
million for the related accumulated provision for depreciation) and $8 million
in construction work in progress.
(23) COMMITMENTS AND CONTINGENT LIABILITIES
Purchase commitments, principally related to construction and nuclear fuel,
approximated $286 million at December 31, 1997. 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 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 was a member of NML, established to provide insurance coverage against
property damage to members' nuclear generating facilities. NML has merged into
NEIL as of January 1, 1998. ComEd's obligations and coverages have not been
affected by the merger. 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 $51 million in any policy year, in the event losses exceed
accumulated reserve funds.
ComEd 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 $22 million and $70
million in the event losses exceed accumulated reserve funds under the
replacement power and property damage coverages, respectively.
The NRC's indemnity for public liability coverage under the Price-Anderson
Act is supported by a mandatory industry-wide program under which owners of
nuclear generating facilities could be assessed in the event of nuclear
incidents. Based on the number of nuclear reactors with operating licenses,
ComEd would currently be subject to a maximum assessment of $1,030 million in
the event of an incident, limited to a maximum of $130 million in any calendar
year.
49
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONTINUED
In addition, ComEd participates in the American Nuclear Insurers Master
Worker Program, which provides coverage for worker tort claims filed for
bodily injury caused by the nuclear energy hazard. This program was modified,
effective January 1, 1998, to provide coverage to all workers whose "nuclear
related employment" began on or after the commencement date of reactor
operations. ComEd will not be liable for a retrospective assessment under this
new policy. However, ComEd is still subject to a maximum retroactive
assessment of up to $36 million in the event losses incurred under the small
number of policies in the old program exceed accumulated reserves.
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 1994, a federal jury returned nominal dollar verdicts on 8
bellwether plaintiffs' claims in these cases, which verdicts were upheld on
appeal. The remaining claims in the 1989 actions have been settled and
dismissed. Although the remaining cases will necessarily involve the
resolution of numerous contested issues of fact and law, ComEd's determination
is that these actions will not have a material impact on its financial
position or results of operations. A case relating to 14 of the plaintiffs in
the 1991 cases has been set for trial in June 1998.
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.
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 (1998) dollars. It is expected that the costs
associated with investigation and remediation of former MGP sites will be
incurred over a period not to exceed 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 $25 million has been included in other
noncurrent liabilities on the Consolidated Balance Sheets as of December 31,
1997 and 1996, 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, 1997 and 1996, a reserve of $8 million has been included in other
noncurrent liabilities on the Consolidated Balance Sheets, representing
ComEd's estimate of the liability associated with cleanup costs of remediation
sites other than former MGP sites. Approximately half of this reserve relates
to anticipated cleanup costs associated with a property formerly used as a
tannery which was purchased by ComEd in 1973. ComEd presently estimates that
its costs of investigating and remediating the former MGP and other
remediation sites, pursuant to CERCLA and state environmental laws, will not
have a material impact on the financial position or results of operations of
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.
50
<PAGE>
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS--CONCLUDED
Final ICC orders have been issued in fuel reconciliation proceedings for
years prior to 1994 and for the year 1995. In 1996, an intervenor filed
testimony in the fuel reconciliation proceeding for 1994 seeking a refund of
approximately $90 million relating to nuclear station performance. The 1997
Act provides that the fuel reconciliation proceedings for 1994 and 1996 must
be concluded by the end of 1998. If refunds are required in these proceedings,
the refunds could have a material effect on results of operations. The 1997
Act also provides that, because ComEd eliminated its FAC effective January 1,
1997, the lCC shall not conduct a fuel reconciliation proceeding for the year
1997 and subsequent years. See Note 2 for information regarding the
elimination of ComEd's FAC.
(24) QUARTERLY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
THREE MONTHS ENDED NET INCOME/
(1997 RESTATED FOR ELECTRIC ELECTRIC (LOSS) ON
CHANGE IN OPERATING OPERATING NET COMMON
ACCOUNTING PRINCIPLE) REVENUES INCOME INCOME/(LOSS) STOCK
- ---------------------- ---------- --------- ------------- -----------
(THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
March 31, 1997.......... $1,669,495 $214,310 $ 277,928 $ 262,401
June 30, 1997........... $1,685,196 $154,820 $ 25,063 $ 9,578
September 30, 1997...... $2,068,087 $390,630 $ 260,985 $ 246,083
December 31, 1997....... $1,650,310 $162,054 $(1,337,749) $(1,352,321)
March 31, 1996.......... $1,683,489 $298,711 $ 155,891 $ 139,377
June 30, 1996........... $1,547,632 $254,690 $ 119,448 $ 102,976
September 30, 1996...... $2,066,975 $475,839 $ 353,147 $ 337,262
December 31, 1996....... $1,636,451 $241,278 $ 114,882 $ 99,329
<CAPTION>
NET INCOME/
ELECTRIC ELECTRIC (LOSS) ON
THREE MONTHS ENDED PRO OPERATING OPERATING NET COMMON
FORMA (UNAUDITED) (A) REVENUES INCOME INCOME/(LOSS) STOCK
- ----------------------- ---------- --------- ------------- -----------
(THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
March 31, 1997.......... $1,669,495 $214,310 $ 81,228 $ 65,701
June 30, 1997........... $1,685,196 $154,820 $ 25,063 $ 9,578
September 30, 1997...... $2,068,087 $390,630 $ 260,985 $ 246,083
December 31, 1997....... $1,650,310 $162,054 $(1,337,749) $(1,352,321)
March 31, 1996.......... $1,636,072 $272,444 $ 129,624 $ 113,110
June 30, 1996........... $1,599,596 $284,870 $ 149,628 $ 133,156
September 30, 1996...... $2,044,793 $462,950 $ 340,258 $ 324,373
December 31, 1996....... $1,708,617 $282,384 $ 155,988 $ 140,435
</TABLE>
(a) Pro Forma quarterly financial information as if the change in accounting
principle had been applied retroactively, excluding the cumulative effect
of a change in accounting principle.
51
