COMMONWEALTH EDISON CO, 10-Q, 2000-11-08

COMMONWEALTH EDISON CO
10-Q, 2000-11-08
ELECTRIC SERVICES

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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2000

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

<TABLE>
<CAPTION>
Commission
File Registrant; State of Incorporation; IRS Employer
Number Address; and Telephone Number Identification No.
---------- ----------------------------------- ------------------
<C> <S> <C>
1-1839 COMMONWEALTH EDISON COMPANY 36-0938600
(an Illinois corporation)
37th Floor, 10 South Dearborn Street
Post Office Box 767
Chicago, Illinois 60690-0767
312/394-4321
</TABLE>

Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) have been subject to such filing
requirements for the past 90 days. Yes X No

Common Stock outstanding at October 31, 2000:
Commonwealth Edison Company 183,745,893 shares

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<PAGE>

Commonwealth Edison Company

Quarterly Report on Form 10-Q
to the Securities and Exchange Commission
for the Quarterly Period Ended September 30, 2000

This document contains the Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 2000 for Commonwealth Edison Company. Information
contained herein relating to an individual registrant is filed by such
registrant on its own behalf. In addition, several portions of these Quarterly
Reports contain forward-looking statements; and reference is made to pages 51-
52 for the location and character of such statements.

INDEX
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Definitions.............................................................. 3
PART I. FINANCIAL INFORMATION
Commonwealth Edison Company and Subsidiary Companies:
Financial Statements--
Report of Independent Public Accountants............................. 4
Statements of Consolidated Operations for the three months, nine
months and twelve months ended September 30, 2000 and 1999.......... 5
Consolidated Balance Sheets--September 30, 2000 and December 31,
1999................................................................ 6-7
Statements of Consolidated Capitalization--September 30, 2000 and
December 31, 1999................................................... 8
Statements of Consolidated Retained Earnings for the three months,
nine months and twelve months ended September 30, 2000 and 1999..... 9
Statements of Consolidated Comprehensive Income for the three months,
nine months and twelve months ended September 30, 2000 and 1999..... 9
Statements of Consolidated Cash Flows for the three months, nine
months and twelve months ended September 30, 2000 and 1999.......... 10
Notes to Financial Statements........................................ 11-36
Management's Discussion and Analysis of Financial Condition and Results
of Operations......................................................... 37
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................. 53
Item 6. Exhibits and Reports on Form 8-K............................... 55
SIGNATURES............................................................... 56
</TABLE>

2
<PAGE>

DEFINITIONS

The following terms are used in this document with the following meanings:

<TABLE>
<CAPTION>
Term Meaning
------------------- ---------------------------------------------------------
<C> <S>
1997 Act Illinois Electric Service Customer Choice and Rate Relief
Law of 1997, as amended
AFUDC Allowance for funds used during construction
APB Accounting Principles Board
APX Automated Power Exchange Inc., a California company
CERCLA Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended
City City of Chicago
ComEd Commonwealth Edison Company, an Exelon subsidiary
ComEd Funding ComEd Funding, LLC, a ComEd subsidiary
ComEd Funding Trust ComEd Transitional Funding Trust, a ComEd Funding
subsidiary
Cotter Cotter Corporation, formerly a ComEd subsidiary
CTC Non-bypassable "competitive transition charge"
DOE U.S. Department of Energy
Edison Development Edison Development Canada Inc., a ComEd subsidiary
EME Edison Mission Energy, an Edison International subsidiary
EPS Earnings/(Loss) per Common Share
ESPP Employee Stock Purchase Plan
FASB Financial Accounting Standards Board
FERC Federal Energy Regulatory Commission
Fossil Plant ComEd's former six coal-fired generating plants, an oil
and gas-fired plant, and nine peaking unit sites
GAAP Generally Accepted Accounting Principles
ICC Illinois Commerce Commission
IDR Illinois Department of Revenue
Indiana Company Commonwealth Edison Company of Indiana, Inc., a ComEd
subsidiary
INPO Institute of Nuclear Power Operations
ISO Independent System Operator
MGP Manufactured gas plant
NEIL Nuclear Electric Insurance Limited
NRC Nuclear Regulatory Commission
O&M Operation and maintenance
PECO PECO Energy Company, a Pennsylvania company
PPAs Purchase Power Agreements
RES Retail Electric Supplier
RTO Regional Transmission Organization
SEC Securities and Exchange Commission
SFAS Statement of Financial Accounting Standards
SPEs Special purpose entities
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
U.S. EPA U.S. Environmental Protection Agency
</TABLE>

3
<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 September 30, 2000 and December
31, 1999, and the related statements of consolidated operations, retained
earnings, comprehensive income and cash flows for the three-month, nine-month
and twelve-month periods ended September 30, 2000 and 1999. 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 auditing standards generally
accepted in the United States. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Commonwealth Edison Company and subsidiary companies as of September 30, 2000
and December 31, 1999, and the results of their operations and their cash
flows for the three-month, nine-month and twelve-month periods ended September
30, 2000 and 1999, in conformity with accounting principles generally accepted
in the United States.

Arthur Andersen LLP
Chicago, Illinois
November 3, 2000

4
<PAGE>

COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES

STATEMENTS OF CONSOLIDATED OPERATIONS

The following Statements of Consolidated Operations for the three months,
nine months and twelve months ended September 30, 2000 and 1999 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 prices, regulation, population, business
activity, asset dispositions, 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.

The accompanying Notes to Financial Statements are an integral part of the
above statements.

5
<PAGE>

COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
(Thousands of Dollars)
ASSETS
------
<S> <C> <C>
Utility Plant:
Plant and equipment, at original cost (includes
construction work in progress of $796 million and
$654 million, respectively)...................... $25,742,682 $25,007,637
Less--Accumulated provision for depreciation...... 14,151,813 13,729,223
----------- -----------
$11,590,869 $11,278,414
Nuclear fuel, at amortized cost................... 845,401 843,724
----------- -----------
$12,436,270 $12,122,138
----------- -----------
Investments:
Nuclear decommissioning funds..................... $ 2,662,020 $ 2,546,540
Subsidiary companies.............................. 50,363 77,061
Other investments, at cost........................ 57,107 63,702
----------- -----------
$ 2,769,490 $ 2,687,303
----------- -----------
Current Assets:
Cash and temporary cash investments............... $ 230,551 $ 1,254,868
Cash held for redemption of securities............ 71,622 285,056
Special deposits.................................. 515 45,730
Receivables--
Customers....................................... 1,155,669 1,183,505
Forward share repurchase contract............... -- 813,046
Income Taxes.................................... 682,001 --
Other........................................... 206,970 181,793
Provisions for uncollectible accounts........... (45,560) (49,344)
Coal and fuel oil, at average cost................ 14,554 14,222
Materials and supplies, at average cost........... 238,518 220,398
Deferred income taxes related to current assets
and liabilities.................................. 59,644 54,796
Prepayments and other............................. 23,885 30,539
----------- -----------
$ 2,638,369 $ 4,034,609
----------- -----------
Deferred Charges and Other Noncurrent Assets:
Note receivable from affiliate.................... $ 2,450,000 $ 2,450,000
Regulatory assets................................. 1,526,590 1,792,907
Other............................................. 56,722 73,308
----------- -----------
$ 4,033,312 $ 4,316,215
----------- -----------
$21,877,441 $23,160,265
=========== ===========
</TABLE>

The accompanying Notes to Financial Statements are an integral part of the
above statements.

6
<PAGE>

COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
September 30, December 31,
CAPITALIZATION AND LIABILITIES 2000 1999
------------------------------ ------------- -----------
(Thousands of Dollars)
<S> <C> <C> <C>
Capitalization (see accompanying statements):
Common stock equity........................... $ 4,511,985 $ 5,302,915
Preferred and preference stocks without
mandatory redemption requirements............ 6,977 8,768
Company-obligated mandatorily redeemable
preferred securities of subsidiary trusts
holding solely the Company's subordinated
debt securities*............................. 350,000 350,000
Long-term debt................................ 7,059,606 6,962,448
----------- -----------
$11,928,568 $12,624,131
----------- -----------
Current Liabilities:
Notes payable................................. $ 277,867 $ 4,750
Current portion of long-term debt, redeemable
preference stock and capitalized lease
obligations.................................. 343,967 909,900
Accounts payable.............................. 799,570 545,329
Accrued interest.............................. 121,699 147,044
Accrued taxes................................. 130,453 1,409,626
Dividends payable............................. 76,155 92,656
Customer deposits............................. 69,823 68,128
Other......................................... 172,769 307,040
----------- -----------
$ 1,992,303 $ 3,484,473
----------- -----------
Deferred Credits and Other Noncurrent
Liabilities:
Deferred income taxes......................... $ 3,388,148 $ 2,456,447
Nuclear decommissioning liability for retired
plants....................................... 1,288,000 1,259,700
Accumulated deferred investment tax credits... 461,762 484,717
Accrued spent nuclear fuel disposal fee and
related interest............................. 797,457 763,427
Obligations under capital leases.............. -- 161,602
Regulatory liabilities........................ 580,991 596,157
Other......................................... 1,440,212 1,329,611
----------- -----------
$ 7,956,570 $ 7,051,661
----------- -----------
Commitments and Contingent Liabilities (Note 21)
$21,877,441 $23,160,265
=========== ===========
</TABLE>

*As described in Note 10 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.

7
<PAGE>

COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES

STATEMENTS OF CONSOLIDATED CAPITALIZATION

<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ----------------
(Thousands of Dollars)
<S> <C> <C> <C>
Common Stock Equity:
Common stock, $12.50 par value per share--
Outstanding--214,243,000 shares and
213,973,810 shares, respectively........... $ 2,678,054 $ 2,677,995
Premium on common stock and other paid-in
capital..................................... 2,207,370 2,207,287
Capital stock and warrant expense............ (12,464) (12,537)
Retained earnings............................ 790,107 433,001
Other comprehensive income................... 5,428 7,539
Treasury stock--30,497,107 shares and 264,406
shares, respectively........................ (1,156,510) (10,370)
----------- -----------
$ 4,511,985 $ 5,302,915
----------- -----------
Preferred and Preference Stocks Without Manda-
tory
Redemption Requirements:
Preference stock, non-cumulative, without par
value--Outstanding--1,120 shares and 1,120
shares, respectively........................ $ 6,977 $ 6,978
$1.425 convertible preferred stock, cumula-
tive, without par value-- Outstanding--no
shares and 56,291 shares, respectively...... -- 1,790
----------- -----------
$ 6,977 $ 8,768
----------- -----------
Preference Stock Subject to Mandatory
Redemption Requirements:
Preference stock, cumulative, without par
value--
Outstanding--no shares and 700,000 shares,
respectively............................... $ -- $ 69,475
Current redemption requirements for
preference stock included in current
liabilities................................. -- (69,475)
----------- -----------
$ -- $ --
----------- -----------
Company-Obligated Mandatorily Redeemable Pre-
ferred Securities of Subsidiary Trusts Holding
Solely the Company's Subordinated Debt Securi-
ties.......................................... $ 350,000 $ 350,000
----------- -----------
Long-Term Debt:
First mortgage bonds:
Maturing 2000 through 2004--5.30% to 9
3/8%...................................... $ 326,000 $ 698,245
Maturing 2005 through 2014--4.40% to 8
3/8%...................................... 1,299,400 1,299,400
Maturing 2015 through 2023--6.75% to 9
7/8%...................................... 1,486,950 1,589,443
----------- -----------
$ 3,112,350 $ 3,587,088
Transitional trust notes, due 2001 through
2008--5.29% to 5.74%........................ 2,804,541 3,070,000
Sinking fund debentures, due 2001 through
2011--2 7/8% to 4.75%....................... 26,674 30,866
Pollution control obligations, due 2007
through 2014--4.65% to 5 7/8%............... 137,700 139,200
Other long-term debt......................... 1,366,305 916,351
Current maturities of long-term debt included
in current liabilities...................... (343,967) (732,077)
Unamortized net debt discount and premium.... (43,997) (48,980)
----------- -----------
$ 7,059,606 $ 6,962,448
----------- -----------
$11,928,568 $12,624,131
----------- -----------
</TABLE>

The accompanying Notes to Financial Statements are an integral part of the
above statements.

8
<PAGE>

COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES

STATEMENTS OF CONSOLIDATED RETAINED EARNINGS

<TABLE>
<CAPTION>
Three Months
Ended September Nine Months Ended Twelve Months Ended
30 September 30 September 30
------------------ ------------------- -------------------
2000 1999 2000 1999 2000 1999
-------- -------- ---------- -------- ---------- --------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C>
Balance at Beginning of
Period................. $667,396 $211,003 $433,001 $176,643 $ 408,520 $142,989
Add--Net income......... 196,736 287,049 579,965 511,435 691,259 643,283
-------- -------- ---------- -------- ---------- --------
$864,132 $498,052 $1,012,966 $688,078 $1,099,779 $786,272
-------- -------- ---------- -------- ---------- --------
Deduct--
Dividends declared
on--
Common stock........ $ 73,498 $ 85,589 $ 220,494 $256,695 $ 306,083 $342,388
Preferred and
preference stocks.. (1) 1,224 1,240 7,309 2,464 19,791
Other capital stock
transactions--net... 528 2,719 1,125 15,554 1,125 15,573
-------- -------- ---------- -------- ---------- --------
$ 74,025 $ 89,532 $ 222,859 $279,558 $ 309,672 $377,752
-------- -------- ---------- -------- ---------- --------
Balance at End of Period
(Includes $1,087
million and $627
million of appropriated
retained earnings for
future dividend
payments at September
30, 2000 and 1999,
respectively).......... $790,107 $408,520 $ 790,107 $408,520 $ 790,107 $408,520
======== ======== ========== ======== ========== ========
</TABLE>

COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES

STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME

The accompanying Notes to Financial Statements are an integral part of the
above statements.

9
<PAGE>

COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES

STATEMENTS OF CONSOLIDATED CASH FLOWS

<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 September 30 September 30
-------------------- ------------------------ ------------------------
2000 1999 2000 1999 2000 1999
--------- --------- ----------- ----------- ----------- -----------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C>
Cash Flow from Operating
Activities:
Net income............. $ 196,736 $ 287,049 $ 579,965 $ 511,435 $ 691,259 $ 643,283
Adjustments to
reconcile net income
(loss) to net cash
provided by operating
activities:
Depreciation and am-
ortization.......... 284,243 208,597 945,428 737,501 1,109,961 970,440
Deferred income taxes
and investment tax
credits--net........ (98,569) (11,861) (200,353) (115,059) (1,537,204) (43,256)
Contribution to envi-
ronmental trust..... -- -- -- -- (250,000) --
Recovery of coal re-
serve regulatory as-
sets................ -- 91,642 -- 111,578 178,038 108,078
Change in MGP
remediation liabili-
ty.................. (2,600) -- (3,800) -- 64,278 --
Loss/(gain) on for-
ward share arrange-
ments............... -- 17,514 (113,071) (15,903) (53,196) (15,903)
Provisions/(payments)
for revenue re-
funds--net.......... -- (2,439) -- (22,297) (371) 306
Equity component of
allowance for funds
used during
construction........ (2,643) (2,243) (7,945) (5,999) (9,735) (7,600)
Payments for liabil-
ity for separation
costs--net.......... 19,303 (1,746) 10,248 (11,544) (40,604) 1,029
Net effect on cash
flows of changes in:
Receivables........ (103,605) 26,726 (1,757) 99,830 (219,620) 44,550
Coal and fuel oil.. 3,120 15,078 (332) 4,303 (3,076) 21,446
Materials and sup-
plies............. (2,787) (2,439) (18,120) (12,420) (12,857) 2,413
Accounts payable
excluding
separation costs--
net............... 210,742 1,137 243,993 (106,930) 293,305 20,158
Accrued interest
and taxes......... 43,444 7,952 (889,880) 127,657 223,438 (118,229)
Other changes in
certain current
assets and liabil-
ities............. (27,499) 36,964 9,919 91,196 43,214 148,914
Other--net........... 30,689 (50,362) 168,924 88,165 (15,948) 98,779
--------- --------- ----------- ----------- ----------- -----------
$ 550,474 $ 621,569 $ 723,219 $ 1,481,513 $ 460,882 $ 1,874,408
--------- --------- ----------- ----------- ----------- -----------
Cash Flow from Investing
Activities:
Construction expendi-
tures................. $(324,746) $(262,946) $ (899,072) $ (736,654) $(1,245,816) $(1,021,602)
Nuclear fuel expendi-
tures................. (123,007) (90,926) (224,486) (204,873) (273,096) (247,458)
Sale of generating
plants................ -- -- -- -- 4,885,720 --
Note receivable from
affiliates............ -- -- 632 -- (2,450,000) --
Equity component of
allowance for funds
used during
construction.......... 2,643 2,243 7,945 5,999 9,735 7,600
Contributions to nu-
clear decommissioning
funds................. -- -- (39,400) (39,426) (89,919) (96,120)
Other investments and
special deposits...... 1,035 (15,885) 50,907 (18,353) 30,742 (19,239)
Plant removal costs--
net................... 11,474 (17,291) (7,486) (49,303) (25,915) (89,464)
--------- --------- ----------- ----------- ----------- -----------
$(432,601) $(384,805) $(1,110,960) $(1,042,610) $ 841,451 $(1,466,283)
--------- --------- ----------- ----------- ----------- -----------
Cash Flow from Financing
Activities:
Issuance of securi-
ties--
Transitional trust
notes............... $ -- $ -- $ -- $ -- $ -- $ 3,382,629
Other long-term debt. 450,000 -- 450,000 -- 450,050 --
Capital stock........ -- 6 143 21 182 17,029
Retirement, redemption
and repurchase of se-
curities--
Transitional trust
notes............... (85,459) (97,045) (265,459) (237,045) (358,413) (237,045)
Other long-term debt. (115,788) (1,017) (484,964) (1,059,452) (625,481) (1,134,452)
Common stock......... 274 (2,390) (152,890) (32,446) 123,214 (39,246)
Preferred stock...... (2,174) (72,644) (72,318) (606,852) (82,371) (610,423)
Common stock forward
repurchase arrange-
ments................. -- -- (67,135) (662,113) (262,040) (662,113)
Cash dividends paid on
capital stock......... (84,131) (99,246) (260,519) (300,839) (351,572) (404,644)
Proceeds from
sale/leaseback of nu-
clear fuel............ -- -- -- -- -- --
Nuclear fuel lease
principal payments.... (235,365) (55,610) (269,985) (157,546) (367,841) (208,820)
Increase/(decrease) in
short-term
borrowings............ (76,133) 36,900 273,117 172,394 (170,883) 40,104
--------- --------- ----------- ----------- ----------- -----------
$(148,776) $(291,046) $ (850,010) $(2,883,878) $(1,645,155) $ 143,019
--------- --------- ----------- ----------- ----------- -----------
Change in Net Cash Bal-
ance................... $ (30,903) $ (54,282) $(1,237,751) $(2,444,975) $ (342,822) $ 551,144
Cash, Temporary Cash
Investments and Cash
Held for Redemption of
Securities:
Balance at Beginning
of Period............. 333,076 699,277 1,539,924 3,089,970 644,995 93,851
--------- --------- ----------- ----------- ----------- -----------
Balance at End of Pe-
riod.................. $ 302,173 $ 644,995 $ 302,173 $ 644,995 $ 302,173 $ 644,995
========= ========= =========== =========== =========== ===========
</TABLE>

The accompanying Notes to Financial Statements are an integral part of the
above statements.

10
<PAGE>

COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES

NOTES TO FINANCIAL STATEMENTS

(1) Summary of Significant Accounting Policies.

Corporate Structure and Basis of Presentation. ComEd, a regulated electric
utility, is the principal subsidiary of Exelon. The consolidated financial
statements of ComEd include the accounts of ComEd, Indiana Company, Edison
Development, the Trusts, ComEd Funding, and ComEd Funding Trust. All
significant intercompany transactions have been eliminated. Although the
accounts of ComEd Funding and ComEd Funding Trust, which are SPEs, are
included in the consolidated financial statements, as required by GAAP, ComEd
Funding and ComEd Funding Trust are legally separated from ComEd. The assets
of the SPEs are not available to creditors of ComEd and the transitional
property and investments held by the SPEs are not assets of ComEd.

See Note 2 for information on Unicom's merger with PECO.

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. Due to the transition to a new
customer information and billing system, a larger portion of customer revenues
and net receivables were based on estimates for the period July 1998 through
November 1999 than in previous and subsequent periods.

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.

ComEd's investment in generation-related net utility plant, not subject to
cost-based rate regulation, including construction work in progress and
nuclear fuel, and excluding the decommissioning costs included in the
accumulated provision for depreciation was $7.7 billion and $7.8 billion as of
September 30, 2000 and December 31, 1999, respectively.

11
<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 September 30, 2000 and December 31, 1999
were as follows:

<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
(Thousands of Dollars)
<S> <C> <C>
Regulatory assets:
Impaired production plant(1)....................... $ 103,659 $ 366,221
Deferred income taxes (2).......................... 701,714 688,946
Nuclear decommissioning costs--Dresden Unit 1...... 189,506 202,308
Nuclear decommissioning costs--Zion Units 1 and 2.. 495,811 496,638
Unamortized loss on reacquired debt (3)............ 35,900 38,794
---------- ----------
$1,526,590 $1,792,907
========== ==========
Regulatory liabilities:
Deferred income taxes (2).......................... $ 580,991 $ 596,157
========== ==========
</TABLE>
--------
(1) Expected to be substantially recovered through regulated cash flow by the
end of 2000.
(2) Recorded in compliance with SFAS No. 109, Accounting for Income Taxes, for
non-generation related temporary differences.
(3) Amortized over the remaining lives of the non-generation related long-term
debt issued to finance the reacquisition. See "Loss on Reacquired Debt"
below for additional information.

The regulatory assets for Dresden Unit 1 and Zion Units 1 and 2 represent
unrecovered nuclear decommissioning costs, which are expected to be recovered
over the periods 2000-2011 and 2000-2013, respectively, through future rate
recoveries and related trust fund earnings. See "Depreciation, Amortization of
Regulatory Assets and Liabilities and Decommissioning" below for additional
information.

Depreciation, Amortization of Regulatory Assets and Liabilities, and
Decommissioning. Depreciation, amortization of regulatory assets and
liabilities, and decommissioning for the three months, nine months and twelve
months ended September 30, 2000 and 1999 were as follows:

The regulatory asset amortization recorded in the recent three, nine and
twelve month periods represent amounts calculated in accordance with the
earnings cap provisions of the 1997 Act.

Consistent with the provisions of the 1997 Act, the (pre-tax) gain on the
December 1999 sale of Fossil Plant assets of $2.587 billion resulted in a
regulatory liability, which was used to recover

12
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COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES

NOTES TO FINANCIAL STATEMENTS--Continued

regulatory assets. Therefore, the gain on the sale, excluding $43 million of
amortization of investment tax credits, was recorded as a regulatory liability
in the amount of $2.544 billion and amortized in the fourth quarter of 1999.
The amortization of the regulatory liability and additional regulatory asset
amortization of $2.456 billion are reflected in depreciation and amortization
expense on ComEd's Statements of Consolidated Operations and resulted in a net
reduction to depreciation and amortization expense of $88 million in the
fourth quarter of 1999.

See Note 3 for additional information regarding amortization of regulatory
assets with respect to limits on ComEd's earnings due to statutory sharing
provisions. See Note 4 for additional information regarding the fossil plant
sale.

Provisions for depreciation, including nuclear plant, were at average annual
rates of average depreciable utility plant and equipment for the three months,
nine months and twelve months ended September 30, 2000 and 1999 as follows:

<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 September 30 September 30
------------------ ----------------- -------------------
2000 1999 2000 1999 2000 1999
--------- --------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Average annual
depreciation rates..... 2.70% 2.65% 2.70% 2.65% 2.69% 2.67%
</TABLE>

Nuclear plant decommissioning costs generally 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. Dismantling is expected to occur relatively soon after the end of the
current NRC license life of each generating station currently operating. The
accrual for decommissioning is based on the prompt removal method authorized
by NRC guidelines. ComEd's ten operating units have remaining current NRC
license lives ranging from 9 to 28 years. ComEd's Zion Station and Dresden
Unit 1 are retired and are expected to be dismantled beginning in the years
2014 and 2011, respectively, which is consistent with the regulatory treatment
for recovery of the related decommissioning costs.

Based on ComEd's most recent study, decommissioning costs are estimated to
be $5.6 billion in current-year (2000) dollars, including a contingency
allowance. These expenditures are expected to occur primarily during the
period from 2010 through 2034. All 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.

Since 1995, ComEd has collected decommissioning costs from its ratepayers in
conjunction with a rider to its tariffs. The rider allows annual adjustments
to decommissioning cost collections outside the context of a traditional rate
proceeding and will continue under the 1997 Act. The ICC has approved ComEd's
current 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.

ComEd is undertaking steps to transfer its nuclear generating assets,
including the decommissioning trust funds, to a generation and power marketing
subsidiary of Exelon ("Genco"), following the merger with PECO. On August 3,
2000 the NRC approved the request of ComEd and PECO to transfer licenses for
both companies' nuclear plants from ComEd and PECO to Genco.

13
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COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES

NOTES TO FINANCIAL STATEMENTS--Continued

ComEd to continue to collect decommissioning-related charges from its
customers. In May 2000, ComEd filed a petition with the ICC seeking approval
to revise its existing decommissioning rider to its rates. Under the proposed
revision, ComEd would collect approximately $121 million annually for a period
of six years, after which the decommissioning rider and collection of
decommissioning funds would end. On October 25, 2000, an ICC hearing examiner
issued a proposed order denying ComEd's petition on the basis that existing
law does not allow the ICC to authorize ComEd to continue to collect funds for
decommissioning nuclear generating plants that it no longer owns. ComEd
believes that the proposed order is wrong as a matter of law and that the ICC
has the statutory authority to grant the ComEd petition. The ICC is not bound
by the proposed order and may accept or reject it, in whole or in part, in
preparing its final order in the proceedings. Responses from the parties to
the proceedings regarding the proposed order are due in early November and a
final order is expected before year-end. ComEd is evaluating the effect of the
proposed order on the proposed structure of the Genco transaction. The
transfer of the nuclear assets, including the decommissioning trust funds, are
subject to satisfactory resolution of significant regulatory and tax issues.
Although ComEd cannot currently determine whether an alternative funding
structure will ultimately be approved and implemented, such a structure could
increase the decommissioning cost recovery risk. See Note 2 for additional
information on the merger of Unicom and PECO.

For the ten operating nuclear units, decommissioning cost accruals 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 such costs are recovered through rates. As of
September 30, 2000, the total decommissioning costs included in the
accumulated provision for depreciation were $2,197 million.

For ComEd's retired nuclear units, the total estimated liability for nuclear
decommissioning in current-year (2000) dollars is recorded as a noncurrent
liability. The unrecovered portion of the liability is recorded as a
regulatory asset. The nuclear decommissioning liability for retired plants as
of September 30, 2000 was as follows:

<TABLE>
<CAPTION>
Zion
Dresden Units
Unit 1 1 and 2 Total
-------- -------- ----------
(Thousands of Dollars)
<S> <C> <C> <C>
Amounts recovered through rates and investment
fund earnings.................................... $124,394 $478,289 $ 602,683
Unrecovered portion of the liability.............. 189,506 495,811 685,317
-------- -------- ----------
Nuclear decommissioning liability for retired
plants.......................................... $313,900 $974,100 $1,288,000
======== ======== ==========
</TABLE>

Under Illinois law, decommissioning cost collections are required to be
deposited into external trusts. Consequently, such collections do not add to
the cash flows available for general corporate purposes. The fair value of
funds accumulated in the external trusts at September 30, 2000 was $2,662
million, which includes pre-tax unrealized appreciation of $702 million. The
earnings on the external trusts for operating plants accumulate in the fund
balance and accumulated provision for depreciation. Nuclear decommissioning
funding as of September 30, 2000 was as follows:

<TABLE>
<CAPTION>
(Thousands of Dollars)
<S> <C>
Amounts recovered through rates and investment fund
earnings for operating plants (included in the
accumulated provision for depreciation)................ $2,196,811
Amounts recovered through rates and investment fund
earnings for retired plants............................ 602,683
Less past accruals not yet contributed to the trusts.... 137,474
----------
Fair value of external trust funds..................... $2,662,020
==========
</TABLE>

In February 2000, the FASB issued an exposure draft addressing the
accounting for asset removal costs, including those relating to nuclear
decommissioning. The exposure draft would require companies to recognize the
entire decommissioning liability on the balance sheet when the liability is

14
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COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES

NOTES TO FINANCIAL STATEMENTS--Continued

incurred very early in the operating life of the generating station, rather
than ratably over the operating life of the station as is the current industry
accounting practice. The cost basis of the related nuclear power plant would
be increased by a corresponding amount at the time the liability is recorded
and depreciated over the operating life. Although over the life of the
stations total decommissioning provisions would approximate the total amount
recognized over the life of the stations under current electric utility
accounting practices, amounts for interim years could increase or decrease
from currently expected decommissioning provisions. However, ComEd does not
believe such changes will adversely impact results of operations due to the
ability to recover decommissioning costs through rates. The exposure draft is
proposed to be effective for financial statements issued for fiscal years
beginning after June 15, 2001. A final statement is expected to be issued
during the first quarter of 2001.

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 eight million as of
September 30, 2000. It includes the City, an area of about 225 square miles
with an estimated population of approximately three million from which ComEd
derived approximately 30 percent of its ultimate consumer revenues in 1999.
ComEd had approximately 3.5 million electric customers at September 30, 2000.
Revenues are recognized as electric and delivery services are provided to
customers.

As a result of the implementation of a new customer billing and information
system in July 1998, billing and collection delays temporarily increased
accounts receivable from customers. In December 1998 and June 1999, ComEd
recorded increased provisions for uncollectible accounts to recognize the
estimated portion of the receivables that are not expected to be recoverable.
Such provisions increased O&M expenses by $35 million in the twelve months
ended September 30, 1999, compared to normally expected levels. Receivables
from customers include $53 million and $103 million as of September 30, 2000
and December 31, 1999, respectively, in estimated unbilled revenue for service
that has been provided to customers, but for which bill issuance was delayed
beyond the normal date of issuance. Receivables from customers as of September
30, 2000 and December 31, 1999 also include $321 million and $295 million,
respectively, for estimated unbilled revenues for electric service that has
been provided to customers subsequent to the normal billing date and prior to
the end of the reporting period. See "Use of Estimates" above for additional
information regarding ComEd's revenues and net receivables.

See Note 3 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 interest on the one-time fee are presently being recovered through base
rates. See Note 13 for additional information concerning the disposal of spent
nuclear fuel, one-time fee and interest accrual on the one-time fee. Nuclear
fuel expenses, including leased fuel costs and provisions for spent nuclear
fuel disposal costs, were $97 million and $107 million for the three months
ended September 30, 2000 and 1999, respectively, $294 million and $288 million
for the nine months ended September 30, 2000 and 1999, respectively, and $386
million and $372 million for the twelve months ended September 30, 2000 and
1999, respectively.

15
<PAGE>

COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES

NOTES TO FINANCIAL STATEMENTS--Continued

AFUDC and Interest Capitalized. 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 for the non-generation portion of its
business. The equity component of AFUDC is recorded on an after-tax basis and
the borrowed funds component of AFUDC is recorded on a pre-tax basis. The
average annual capitalization rates for AFUDC were 8.29% and 7.87% for the
three months ended September 30, 2000 and 1999, respectively, 8.29% and 7.85%
for the nine months ended September 30, 2000 and 1999, respectively, and 8.14%
and 7.92% for the twelve months ended September 30, 2000 and 1999,
respectively. In accordance with SFAS No. 34, Capitalization of Interest Cost,
ComEd capitalized $2 million and $4 million for the three months ended
September 30, 2000 and 1999, respectively, $4 million and $16 million for the
nine months ended September 30, 2000 and 1999, respectively, and $10 million
and $31 million for the twelve months ended September 30, 2000 and 1999,
respectively, in interest costs on its generation-related construction work in
progress and nuclear fuel in process. AFUDC and interest capitalized do not
contribute to the current cash flow of ComEd.

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 3 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 7 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 manage
effectively 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 amortized over the terms of such contracts.

In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which establishes accounting and reporting
standards requiring that every derivative instrument, including certain
derivative instruments embedded in other contracts, be recorded on the
Consolidated Balance Sheets as either an asset or liability measured at its
fair value. In June 2000, FASB issued SFAS No. 138, Accounting for Certain
Derivative Instruments and Certain Hedging Activities, as an amendment of SFAS
No. 133. SFAS No. 133, as amended, requires that changes in the derivative's
fair value be recognized currently in earnings, unless specific hedge
accounting criteria are met. The accounting for qualifying hedges allows a
derivative's gains and losses to offset related results on the hedged item on
the Statements of Consolidated Operations, and requires companies to formally
document, designate, and assess the effectiveness of transactions that receive
hedge accounting.

16
<PAGE>

COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES

NOTES TO FINANCIAL STATEMENTS--Continued

The effective date of SFAS No. 133, as amended, has been delayed for one
year, to fiscal years beginning after June 15, 2000. SFAS No. 133. SFAS No.
133, as amended, must be applied to (i) derivative instruments and
(ii) certain derivative instruments embedded in hybrid contracts that were
issued, acquired, or substantively modified after January 1, 1998 or January
1, 1999 at the Company's election.

ComEd will adopt SFAS No. 133 on January 1, 2001, and are in the final
process of reviewing their various contracts to determine which contracts need
to be reflected as derivatives under the standard and accounted for at fair
value. Among the contracts that are expected to be subject to the fair value
requirements are contracts related to electricity and gas purchases and sales.
ComEd have not fully quantified the effects on their financial statements of
adopting SFAS No. 133 on January 1, 2001. The ultimate impact will depend upon
market prices, at the time of adoption, for electricity and gas. Adoption of
SFAS No. 133 in 2001 will result in increased volatility in earnings.

Reclassifications. Certain prior year amounts have been reclassified to
conform with current period presentation. These reclassifications had no
effect on operating results.

Cash Held for Redemption of Securities. As of September 30, 2000, the cash
held for redemption of securities reported on the Consolidated Balance Sheets
includes $72 million of escrowed cash and pending instrument funding charges
collected from ComEd customers to be applied to the principal and interest
payment on the transitional trust notes. See Note 3 for additional
information.

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 temporary differences reverse. Prior years'
deferred investment tax credits are amortized through credits to income
generally over the lives of the related property. Income tax credits resulting
from interest charges applicable to nonoperating activities, principally
construction, are classified as other income.

Interest. Total interest costs incurred on debt, leases and other
obligations were $144 million and $155 million for the three months ended
September 30, 2000 and 1999, respectively, $442 million and $470 million for
the nine months ended September 30, 2000 and 1999, respectively, and $594
million and $562 million for the twelve months ended September 30, 2000 and
1999, respectively.

Statements of Consolidated Cash Flows. For purposes of the Statements of
Consolidated Cash Flows, temporary cash investments, generally investments
maturing within three months at the time of purchase, are considered to be
cash equivalents. Supplemental cash flow information for the three months,
nine months and twelve months ended September 30, 2000 and 1999 was as
follows:

17
<PAGE>

COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES

NOTES TO FINANCIAL STATEMENTS--Continued

(2) Merger Agreement. On October 19, 2000, Unicom and PECO received approval
from the Securities and Exchange Commission under the Public Utilities Holding
Company Act of 1935, the last regulatory approval, to complete their merger to
form Exelon Corporation. The companies completed the merger on October 20,
2000 and began trading as Exelon Corporation (NYSE: EXC) on October 23, 2000.

Upon completion of the merger, PECO and ComEd became the principal utility
subsidiaries of Exelon. This result was achieved by a mandatory exchange of
the outstanding common stock of PECO for common stock of Exelon, and a
subsequent merger of Unicom with and into Exelon wherein holders of Unicom
common stock received 0.875 shares of Exelon common stock plus $3.00 in cash
for each of their shares of Unicom common stock. The merger transaction will
be accounted for as a purchase of Unicom by PECO.

Consistent with Unicom's $1 billion share repurchase commitment in the
merger agreement with PECO, Unicom has completed the repurchase of 24 million
shares of its common stock. The shares were repurchased from the open market
over the recent ten months pursuant to agreements with financial institutions.
Approximately $153 million of these share repurchases were funded with
proceeds from the 1998 issuance of transitional trust notes. The remaining
share repurchases were funded from available funds, including funds ultimately
resulting from the fossil plant sale. These share repurchases are in addition
to 26.3 million shares of Unicom common stock that Unicom repurchased in
January 2000 upon settlement of certain forward purchase contracts. See Notes
6 and 23 for additional information.

ComEd and PECO are undertaking steps to transfer their generating assets and
wholesale power marketing operations to subsidiaries following the
consummation of the merger. Subsequent to those transfers, these subsidiaries
will be transferred to Exelon and ultimately will be combined into a power
generation and marketing company, which will be a direct subsidiary of Exelon.
In ComEd's case, the transfer will include its Braidwood, Byron, Dresden,
LaSalle and Quad Cities nuclear generating stations representing an aggregate
generating capability of 9,566 megawatts, its Zion station, its rights and
obligations under various power purchase agreements, the assets constituting
its nuclear decommissioning trusts and its wholesale power marketing business.
Genco will enter into a power purchase agreement with ComEd in which Genco
will undertake to supply ComEd's full requirements for electric energy through
2004 and all of ComEd's requirements up to the available capacity of the
nuclear generating stations in 2005 and 2006. On August 3, the NRC approved
the request of ComEd and PECO to transfer licenses for both companies' nuclear
plants from ComEd and PECO to Genco.

As part of the transfer of the nuclear generating stations, Genco is to
assume responsibility for the decommissioning of those stations, including
Zion Station and Dresden Unit 1, subject to an obligation of ComEd to continue
to collect decommissioning-related charges from its customers. In May 2000,
ComEd filed a petition with the ICC seeking approval to revise its existing
decommissioning rider to its rates. Under the proposed revision, ComEd would
collect approximately $121 million annually for a period of six years, after
which the decommissioning rider and collection of decommissioning funds would
end. On October 25, 2000, an ICC hearing examiner issued a proposed order
denying ComEd's petition on the basis that existing law does not allow the ICC
to authorize ComEd to continue to collect funds for decommissioning nuclear
generating plants that it no longer owns. ComEd believes that the proposed
order is wrong as a matter of law and that the ICC has the statutory authority
to grant the ComEd petition. The ICC is not bound by the proposed order and
may accept or reject it, in whole or in part, in preparing its final order in
the proceedings. Responses from the parties to the proceedings regarding the
proposed order are due in early November and a final order is expected before
year-end. ComEd is evaluating the effect of the proposed order on the

18
<PAGE>

COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES

NOTES TO FINANCIAL STATEMENTS--Continued

proposed structure of the Genco transaction. The transfer of the nuclear
assets, including the decommissioning trust funds, are subject to satisfactory
resolution of significant regulatory and tax issues.

(3) Accounting Effects Related to the 1997 Act. In December 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 was amended in June 1999.

As a result of the 1997 Act and FERC rules, prices for the supply of
electric energy are expected to transition from cost-based, regulated rates to
rates determined by competitive market forces. Accordingly, the 1997 Act
provides for, among other things, gradual customer access to other electric
suppliers or a power purchase option which allows the purchase of electric
energy from ComEd at market based prices, and the collection of a CTC from
customers who choose to purchase electric energy from a RES or elect the power
purchase option during a transition period that extends through 2006.
Effective October 1, 1999, the CTC was established in accordance with a
formula defined in the 1997 Act. The CTC, which is 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. The CTC
allows ComEd to recover some 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 may include cost control efforts, developing new sources
of revenue and asset dispositions. See Note 4 for additional information.

As of June 1, 2000, more than 62,000 non-residential customers are eligible
to choose a new electric supplier or elect the purchase power option. As of
September 30, 2000, over 7,800 non-residential customers, representing
approximately 18 percent of ComEd's retail kilowatthour sales for the twelve
months prior to the introduction of open access, elected to receive their
electric energy from a RES or chose the purchase power option. The impact of
customer choice on results of operations will depend on various factors,
including the extent to which customers elect to receive energy from a RES or
the purchased power option, the development of a competitive market, the
market price for energy, the extent to which ComEd develops new sources of
revenue and the results of cost control efforts. Because of the inherent
uncertainty in these factors ComEd is unable to predict the long term impact
of customer choice on results of operations. However, ComEd does not expect
customer choice to have a material effect in the near term as a result of the
collection of CTCs as provided by 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 a RES 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 ICC issued orders in August and
September 1999 approving, with modifications, ComEd's delivery service
tariffs.

The 1997 Act also provides for a 15% residential base rate reduction which
became effective August 1, 1998 and an additional 5% residential base rate
reduction in October 2001. ComEd's operating revenues were reduced by
approximately $170 million in 1998 due to the 15% residential base rate
reduction. The 15% rate reduction further reduced ComEd's operating revenues
by approximately $226 million in 1999, compared to 1998 rate levels.

19
<PAGE>

COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES

NOTES TO FINANCIAL STATEMENTS--Continued

period only when necessary to ensure the utility's financial viability. 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, one-half of the excess earnings must
be refunded to customers. The threshold rate of return on common equity is
based on the 30-Year Treasury Bond rate, plus 5.5% in the years 1998 and 1999,
and plus 8.5% in the years 2000 through 2004. The utility's earned return on
common equity and the threshold return on common equity for ComEd are each
calculated on a two-year average basis. The earnings sharing provision is
applicable only to ComEd's earnings. Consistent with the provisions of the
1997 Act, increased amortization of regulatory assets may be recorded, thereby
reducing the earned return on common equity, if earnings otherwise would have
exceeded the maximum allowable rate of return. The potential for earnings
sharing or increased amortization of regulatory assets could limit earnings in
future periods. ComEd's returns on average common equity for the years 1999
and 1998 were 11.56% and 10.86%, respectively. The average return of 11.21%
for the two year period ended December 31, 1999 equaled the threshold return
for that period under the earnings provisions of the 1997 Act. ComEd does not
currently expect to trigger the earnings sharing provisions of the 1997 Act in
the years 2000 through 2004.

The 1997 Act also allows a portion of ComEd's future revenues to be
segregated and used to support the issuance of securities by ComEd or a SPE.
The proceeds, net of transaction costs, from such security issuances must be
used to refinance outstanding debt or equity or for certain other limited
purposes. In December 1998, ComEd initiated the issuance of $3.4 billion of
transitional trust notes through its SPEs, ComEd Funding and ComEd Funding
Trust. The proceeds from the transitional trust notes, net of transaction
costs, were used to redeem long-term debt and preference stock and reduce
ComEd's outstanding short-term debt, as required. Unicom has also repurchased
its common stock using proceeds it received from ComEd's repurchase of its
common stock held by Unicom. The balance of the proceeds were used for the
payment of fees and other debt issuance costs and a collateral requirement
related to the transitional trust notes.

(4) Fossil Plant Sale. In December 1999, ComEd completed the sale of its
fossil generating assets to EME for a cash purchase price of $4.8 billion. The
fossil generating assets represent an aggregate generating capacity of
approximately 9,772 megawatts.

Just prior to the consummation of the fossil plant sale, ComEd transferred
these assets to an affiliate, Unicom Investment. In consideration for the
transferred assets, Unicom Investment paid ComEd consideration totalling
approximately $4.8 billion in the form of a demand note in the amount of
approximately $2.4 billion and an interest-bearing note with a maturity of
twelve years. Unicom Investment immediately sold the fossil plant assets to
EME, in consideration of which Unicom Investment received approximately $4.8
billion in cash from EME. Immediately after its receipt of the cash payment
from EME, Unicom Investment paid the $2.4 billion aggregate principal due to
ComEd under the demand note. Unicom Investment will use the remainder of the
cash received from EME to fund other business opportunities, including the
share repurchases. Of the cash received by ComEd, $1.5 billion has been used
to pay the costs and taxes associated with the fossil plant sale, including
ComEd's contribution of $250 million of the proceeds to an environmental trust
as required by the 1997 Act. The remainder of the demand note proceeds will be
available to ComEd to fund, among other things, transmission and distribution
projects, nuclear generation station projects, and environmental and other
initiatives. See Note 1, under "Investment in Leases," for additional
information.

20
<PAGE>

COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES

NOTES TO FINANCIAL STATEMENTS--Continued

remaining balance of ComEd's regulatory asset for unrecovered coal reserves of
$178 million and the recognition of $172 million of settlement payments
related to the above-market portion of coal
purchase commitments ComEd assigned to EME at market value upon completion of
the fossil plant sale. The severance costs included pension and post-
retirement welfare benefit curtailment and special termination benefit costs
of $51 million and transition, separation and retention payments of $61
million. A total of 1,730 fossil station employee positions were eliminated
upon completion of the fossil plant sale on December 15, 1999. The employees
whose positions were eliminated have been terminated. Consistent with the
provisions of the 1997 Act, the (pre-tax) gain on the sale of $2.587 billion
resulted in a regulatory liability, which was used to recover regulatory
assets. Therefore, the gain on the sale, excluding $43 million of amortization
of investment tax credits, was recorded as a regulatory liability in the
amount of $2.544 billion and amortized in the fourth quarter of 1999. The
amortization of the regulatory liability and additional regulatory asset
amortization of $2.456 billion are reflected in depreciation and amortization
expense on ComEd's Statement of Consolidated Operations. See Note 1, under
"Regulatory Assets and Liabilities," for additional information.

(5) Authorized Shares and Voting Rights of Capital Stock. At September 30,
2000, the authorized shares of capital stock were: common stock--250,000,000
shares; preference stock--6,810,451 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.

(6) Common Equity. In January 2000, ComEd physically settled the forward
share repurchase arrangements it had with Unicom for the repurchase of 26.3
million ComEd common shares. Prior to settlement, the repurchase arrangements
were recorded as a receivable on ComEd's Consolidated Balance Sheets based on
the aggregate market value of the shares under the arrangements. In 1999, net
unrealized losses of $44 million (after-tax) were recorded related to the
arrangements. The settlement of the arrangements in January 2000 resulted in a
gain of $113 million (after-tax), which was recorded in the first quarter of
2000. The settlement of the arrangements resulted in a reduction in ComEd's
outstanding common shares and common stock equity, effective January 2000.

During the first quarter of 2000, ComEd used $153 million to repurchase an
additional 4 million of its common shares from Unicom with proceeds from the
1998 issurance of transitional trust notes.

At September 30, 2000, 25,027 shares of common stock were reserved for the
conversion of warrants.

Shares of common stock issued/(reacquired) for the three months, nine months
and twelve months ended September 30, 2000 and 1999 were as follows:

21
<PAGE>

COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES

NOTES TO FINANCIAL STATEMENTS--Continued

At September 30, 2000 and December 31, 1999, 75,082 and 75,692,
respectively, of common stock purchase warrants 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.

(7) 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
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. Options granted before July 22, 1998
also vest in full upon a change in control, while options granted on or after
July 22, 1998 vest in full if the option holder is terminated within 24 months
after a change of control.

Stock option transactions through September 30, 2000 are summarized as
follows:

<TABLE>
<CAPTION>
Number of Weighted Average
Options Exercise Price
--------- ----------------
<S> <C> <C>
Outstanding as of December 31, 1997................ 2,291,378 $23.810
Granted during the year............................ 1,379,525 35.234
Exercised during the year.......................... (404,082) 24.244
Expired/cancelled during the year.................. (123,928) 25.715
---------
Outstanding as of December 31, 1998................ 3,142,893 28.694
Granted during the year............................ 1,853,050 35.750
Exercised during the year.......................... (313,231) 24.102
Expired/cancelled during year...................... (179,076) 33.551
---------
Outstanding as of December 31, 1999................ 4,503,636 31.723
Granted during the nine months ended September 30,
2000.............................................. 2,213,100 37.063
Exercised during the nine months ended September
30, 2000.......................................... (874,785) 27.834
Expired/cancelled during the nine months ended Sep-
tember 30, 2000................................... (140,598) 35.710
---------
Outstanding as of September 30, 2000............... 5,701,353 34.294
=========
</TABLE>

Of the stock options outstanding at September 30, 2000, 2,075,749 had vested
with a weighted average exercise price of $30.77.

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
-----------------------
2000 1999 1998
------- ------- -------
<S> <C> <C> <C>
Expected option life.................................... 7 years 7 years 7 years
Dividend yield.......................................... 4.30% 4.50% 4.54%
Expected volatility..................................... 21.97% 23.02% 21.95%
Risk-free interest rate................................. 6.76% 4.83% 5.58%
</TABLE>

The estimated weighted average fair value for each stock option granted in
the first three quarters of 2000 and in 1999 and 1998 was $8.19, $6.48 and
$6.62, respectively.

The ESPP was terminated on June 28, 2000 by Unicom's Board of Directors in
anticipation of the merger with PECO. The ESPP allowed employees to purchase
Unicom common stock at a ten percent

22
<PAGE>

COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES

NOTES TO FINANCIAL STATEMENTS--Continued

discount from market value. Substantially all of the employees of ComEd and
its subsidiaries were eligible to participate in the ESPP. Unicom issued
83,231 and 86,884 shares of common stock for the twelve months ended September
30, 2000 and 1999, respectively, under the ESPP at a weighted average annual
purchase price of $35.02 and $34.34, respectively.

ComEd has adopted the disclosure-only provisions of SFAS No. 123. For
financial reporting purposes, ComEd has adopted APB No. 25 and has taken into
consideration FASB Interpretation No. 44 of 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 additional charge
to operations would have been $4 million (after-tax) and $4 million (after-
tax) for the twelve months ended September 30, 2000 and 1999, respectively.

(8) Preferred and Preference Stocks Without Mandatory Redemption
Requirements. During the twelve months ended September 30, 2000 and 1999, no
shares and 13,499,549 shares of preferred or preference stock without
mandatory redemption requirements were redeemed, respectively, and no shares
were issued. All of the outstanding shares of Series $1.425 preferred stock
were redeemed on August 1, 2000. The redemption price was $42 per share, plus
accrued and unpaid dividends.

(9) Preference Stock Subject to Mandatory Redemption Requirements. During
the twelve months ended September 30, 2000 and 1999, no shares of ComEd
preference stock subject to mandatory redemption requirements were issued.
During the twelve months ended September 30, 2000 and 1999, 700,000 shares and
1,056,060 shares, respectively, of ComEd preference stock subject to mandatory
redemption requirements were reacquired to meet sinking fund requirements or
were part of the early redemption in 1999. There were 700,000 shares of Series
$6.875 preference stock outstanding at December 31, 1999, at an aggregate
stated value of $69 million. This series was non-callable and was redeemed on
May 1, 2000.

(10) Company-Obligated Mandatorily Redeemable Preferred Securities of
Subsidiary Trusts Holding Solely 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% 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 ten 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.

23
<PAGE>

COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES

NOTES TO FINANCIAL STATEMENTS--Continued

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 subordinated 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.

(11) Long-Term Debt. ComEd initiated the issuance of $3.4 billion of
transitional trust notes through its SPEs, ComEd Funding and ComEd Funding
Trust, in the fourth quarter of 1998. The current amount outstanding is as
follows:

<TABLE>
<CAPTION>
Series Principal Amount
------------------------ ----------------------
(Thousands of Dollars)
<S> <C>
5.29% due June 25, 2001............................ $ 254,541
5.34% due March 25, 2002........................... 258,861
5.39% due June 25, 2003............................ 421,139
5.44% due March 25, 2005........................... 598,511
5.63% due June 25, 2007............................ 761,489
5.74% due December 25, 2008........................ 510,000
----------
$2,804,541
==========
</TABLE>

For accounting purposes, the liabilities of ComEd Funding Trust for the
transitional trust notes are reflected as long-term debt on the Consolidated
Balance Sheets of ComEd.

The proceeds, net of transaction costs, from the transitional trust notes
were used, as required, to redeem debt and equity. During 1999, ComEd redeemed
or reacquired $1,101 million of long-term debt.

Sinking fund requirements and scheduled maturities remaining through 2004
for ComEd's first mortgage bonds, transitional trust notes, sinking fund
debentures and other long-term debt outstanding at September 30, 2000, after
deducting deposits made for the retirement of sinking fund debentures, are
summarized as follows: 2000--$86 million; 2001--$346 million; 2002--$845
million; 2003--$695 million; and 2004--$577 million.

At September 30, 2000, ComEd's outstanding first mortgage bonds maturing
through 2004 were as follows:

<TABLE>
<CAPTION>
Series Principal Amount
-------------------------------- ----------------------
(Thousands of Dollars)
<S> <C>
7 3/8% due September 15, 2002...................... $200,000
6 5/8% due July 15, 2003........................... 100,000
5 3/10% due January 15, 2004....................... 26,000
--------
$326,000
========
</TABLE>

24
<PAGE>

COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES

NOTES TO FINANCIAL STATEMENTS--Continued

Other long-term debt outstanding at September 30, 2000 is summarized as
follows:

<TABLE>
<CAPTION>
Principal
Debt Security Amount Interest Rate
----------------------------------- ---------- ------------------------------------------
(Thousands
of
Dollars)
<S> <C> <C>
Notes:
Senior note due September 30,
2002 $ 200,000 Interest rate of 7.158%
Senior note due September 30,
2003 250,000 Interest rate of 7.284%
Medium Term Notes, Series 3N due
various dates through October
15, 2004 156,000 Interest rates ranging from 9.17% to 9.20%
Note due to Unicom Enterprises 51 Variable interest rate
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%
Notes due July 15, 2018 225,000 Interest rate of 6.95%
----------
$1,366,051
----------
Purchase Contract Obligation
due April 30, 2005 $ 254 Interest rate of 3.00%
----------
Total $1,366,305
----------
</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.

(12) Lines of Credit. ComEd had total unused bank lines of credit of $800
million at September 30, 2000. Of that amount, $500 million expires on
December 15, 2000 and $300 million expires on December 17, 2002. 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. ComEd is
obligated to pay commitment and facility fees with respect to the line of
credit.

(13) 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 entered into 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. 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. Pursuant to 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. The
contract also 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. This extended delay in spent nuclear fuel
acceptance by the DOE has led to ComEd's consideration of additional dry
storage alternatives. On July 30, 1998, ComEd filed a complaint against the
United States in the United States Court of Federal Claims seeking to recover
damages caused by the DOE's failure to honor its contractual obligation to
begin disposing of spent nuclear fuel in January 1998. On September 14, 2000,
the Judge hearing

25
<PAGE>

COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES

NOTES TO FINANCIAL STATEMENTS--Continued

ComEd's case lifted a stay originally imposed on November 5, 1999. The court
further ordered the government to file a response to ComEd's motion for
summary judgment on the issue of the DOE's liability for breaching its
contract with ComEd.

(14) 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 primarily 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 decommissioning funds, as determined by
the trustee and based on published market data, as of September 30, 2000 and
December 31, 1999 was as follows:

<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
-------------------------------- --------------------------------
Unrealized Unrealized
Gains/ Gains/
CostBasis (Losses) Fair Value Cost Basis (Losses) Fair Value
---------- ---------- ---------- ---------- ---------- ----------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C>
Short-term investments.. $ 33,583 $ -- $ 33,583 $ 41,362 $ 95 $ 41,457
U.S. Government and
Agency issues.......... 244,797 8,761 253,558 245,399 (1,993) 243,406
Municipal bonds......... 394,946 6,027 400,973 383,816 (940) 382,876
Corporate bonds......... 212,357 (2,416) 209,941 196,942 (5,699) 191,243
Common stock............ 911,799 677,324 1,589,123 832,802 732,893 1,565,695
Other................... 162,879 11,963 174,842 125,072 (3,209) 121,863
---------- -------- ---------- ---------- -------- ----------
$1,960,361 $701,659 $2,662,020 $1,825,393 $721,147 $2,546,540
========== ======== ========== ========== ======== ==========
</TABLE>

At September 30, 2000, 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....................................... $ 31,303 $ 31,627
1 through 5 years................................... 325,139 326,986
5 through 10 years.................................. 222,319 226,044
Over 10 years....................................... 425,776 429,513
</TABLE>

26
<PAGE>

COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES

NOTES TO FINANCIAL STATEMENTS--Continued

The net earnings of the nuclear decommissioning funds, which are recorded in
the accumulated provision for depreciation, for the three months, nine months
and twelve months ended September 30, 2000 and 1999 were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 September 30 September 30
------------------ ---------------------- ---------------------
2000 1999 2000 1999 2000 1999
-------- --------- ---------- ---------- ---------- ----------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C>
Gross proceeds from
sales of
securities............. $359,346 $ 399,024 $1,263,586 $1,241,887 $1,786,700 $1,637,011
Less cost based on spe-
cific
identification......... 332,394 386,970 1,198,132 1,205,155 1,711,128 1,598,484
-------- --------- ---------- ---------- ---------- ----------
Realized gains/(losses)
on sales of
securities............. $ 26,952 $ 12,054 $ 65,454 $ 36,732 $ 75,571 $ 38,527
Other realized fund
earnings, net of
expenses............... 12,126 12,186 30,113 43,002 50,038 59,983
-------- --------- ---------- ---------- ---------- ----------
Total realized net earn-
ings of the funds...... $ 39,078 $ 24,240 $ 95,567 $ 79,734 $ 125,609 $ 98,510
Unrealized
gains/(losses)......... 6,056 (135,210) (19,488) (46,472) 128,494 142,147
-------- --------- ---------- ---------- ---------- ----------
Total net earnings of
the funds............. $ 45,134 $(110,970) $ 76,079 $ 33,262 $ 254,103 $ 240,657
======== ========= ========== ========== ========== ==========
</TABLE>

Securities held by certain trusts, which were established to provide for
supplemental retirement benefits and executive medical claims, have been
classified and accounted for as "available for sale." The estimated fair value
of these securities, as determined by the trustee and based on published
market data, as of September 30, 2000 was as follows:
<TABLE>
<CAPTION>
Cost Unrealized Fair
Basis Gain Value
------- ---------- -------
(Thousands of Dollars)
<S> <C> <C> <C>
Short-term investments.............................. $ 279 $ -- $ 279
Registered investment companies..................... 21,955 13,258 35,213
------- ------- -------
$22,234 $13,258 $35,492
======= ======= =======
</TABLE>

Current Assets. Cash, temporary cash investments, cash held for redemption
of securities and other cash investments, which include U.S. Government
obligations and other short-term marketable securities, and special deposits,
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
subsidiary trusts holding solely the Company's subordinated debt securities,
transitional trust notes, 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 September 30, 2000 and December 31, 1999 were as follows:

<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
-------------------------------- ---------------------------------
Unrealized Unrealized
Carrying Gains/ Carrying Gains/
Value (Losses) Fair Value Value (Losses) Fair Value
---------- ---------- ---------- ---------- ---------- ----------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C>
Preferred and preference
stocks................. $ -- $ -- $ -- $ 71,265 $ 58 $ 71,323
Company-obligated
mandatorily redeemable
preferred securities of
subsidiary trusts
holding solely the
Company's subordinated
debt securities........ $ 350,000 $(21,467) $ 328,533 $ 350,000 $ (10,595) $ 339,405
Transitional trust
notes.................. $2,794,121 $(98,119) $2,696,002 $3,057,112 $(163,600) $2,893,512
Long-term debt.......... $4,609,147 $ 4,234 $4,613,381 $4,637,062 $ (22,237) $4,614,825
</TABLE>

27
<PAGE>

COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES

NOTES TO FINANCIAL STATEMENTS--Continued

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
portion of long-term debt and redeemable preference stock.

Other Noncurrent Liabilities. The carrying value of accrued spent nuclear
fuel disposal fee and related interest represents the settlement value as of
September 30, 2000 and December 31, 1999; therefore, the carrying value is
equal to the fair value.

(15) Pension and Postretirement Benefits. As of September 30, 2000, ComEd
had a qualified non-contributory defined benefit pension plan which covers all
regular employees of ComEd. Benefits under this plan reflect each employee's
compensation, years of service and age at retirement. Funding is based upon
actuarially determined contributions that take into account the amount
deductible for income tax purposes and the minimum contribution required under
the Employee Retirement Income Security Act of 1974, as amended. The September
30, 2000 and December 31, 1999 pension liabilities and related data were
determined using the January 1, 1999 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. In 1998,
Indiana Company's qualified defined benefit pension plan was merged into
ComEd's pension plan as a result of the sale of Indiana Company's State Line
Station and the transfer of its remaining employees to ComEd.

ComEd provides certain postretirement medical, dental and vision care, and
life insurance for retirees and their dependents and for the surviving
dependents of eligible employees and retirees. Generally, the employees become
eligible for postretirement benefits if they retire no earlier than age 55
with ten 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 health care
plans are contributory, funded jointly by the companies and the participating
retirees. The September 30, 2000 and December 31, 1999 postretirement benefit
liabilities and related data were determined using the January 1, 1999
actuarial valuations.

28
<PAGE>

COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES

NOTES TO FINANCIAL STATEMENTS--Continued

Reconciliations of the beginning and ending balances of the projected
pension benefit obligation and the accumulated postretirement benefit
obligation, and the funded status of these plans for the nine months ended
September 30, 2000 and twelve months ended December 31, 1999 were as follows:

<TABLE>
<CAPTION>
Nine Months Ended Twelve Months Ended
September 30, 2000 December 31, 1999
-------------------------- --------------------------
Other Other
Pension Postretirement Pension Postretirement
Benefits Benefits Benefits Benefits
---------- -------------- ---------- --------------
(Thousands of Dollars)
Change in benefit
obligation
-----------------
<S> <C> <C> <C> <C>
Benefit obligation at
beginning of period.... $4,124,000 $1,169,000 $4,326,000 $1,236,000
Service cost............ 53,000 25,000 120,000 41,000
Interest cost........... 232,000 66,000 285,000 82,000
Plan participants' con-
tributions............. -- 3,000 -- 4,000
Actuarial loss/(gain)... 6,000 (1,000) (428,000) (170,000)
Benefits paid........... (195,000) (43,000) (241,000) (51,000)
Special termination ben-
efits.................. -- 6,000 62,000 27,000
---------- ---------- ---------- ----------
Benefit obligation at
end of period......... $4,220,000 $1,225,000 $4,124,000 $1,169,000
---------- ---------- ---------- ----------
<CAPTION>
Change in plan assets
---------------------
<S> <C> <C> <C> <C>
Fair value of plan as-
sets at beginning of
period................. $4,270,000 $ 948,000 $4,015,000 $ 865,000
Actual return on plan
assets................. 78,000 20,000 493,000 106,000
Employer contribution... 4,000 -- 3,000 24,000
Plan participants' con-
tributions............. -- 3,000 -- 4,000
Benefits paid........... (195,000) (43,000) (241,000) (51,000)
---------- ---------- ---------- ----------
Fair value of plan as-
sets at end of period. $4,157,000 $ 928,000 $4,270,000 $ 948,000
---------- ---------- ---------- ----------
Plan assets
greater/(less) than
benefit obligation..... $ (63,000) $ (297,000) $ 146,000 $ (221,000)
Unrecognized net actuar-
ial gain............... (305,000) (479,000) (534,000) (538,000)
Unrecognized prior serv-
ice cost/(asset)....... (10,000) 38,000 (11,000) 41,000
Unrecognized transition
obligation/(asset)..... (71,000) 261,000 (79,000) 276,000
---------- ---------- ---------- ----------
Accrued liability for
benefits.............. $ (449,000) $ (477,000) $ (478,000) $ (442,000)
========== ========== ========== ==========
</TABLE>

The assumed discount rate used to determine the benefit obligation as of
September 30, 2000 and December 31, 1999 was 7.75%. The fair value of plan
assets excludes $26 million and $25 million held in grantor trust as of
September 30, 2000 and December 31, 1999, respectively, for the payment of
benefits under the supplemental plan and $9 million held in a grantor trust as
of September 30, 2000 and December 31, 1999 for the payment of postretirement
medical benefits.

29
<PAGE>

COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES

NOTES TO FINANCIAL STATEMENTS--Continued

The components of pension and other postretirement benefit costs, portions
of which were recorded as components of construction costs, for the three
months, nine months and twelve months ended September 30, 2000 were as
follows:

In accounting for the pension costs and other postretirement benefit costs
under the plans, the following weighted average actuarial assumptions were
used for the periods during 2000, 1999 and 1998:

<TABLE>
<CAPTION>
Other
Postretirement
Pension Benefits Benefits
----------------- -----------------
2000 1999 1998 2000 1999 1998
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Annual discount rate....................... 7.75% 6.75% 7.00% 7.75% 6.75% 7.00%
Annual long-term rate of return on plan as-
sets...................................... 9.50% 9.25% 9.50% 9.23% 8.97% 9.20%
Annual rate of increase in future compensa-
tion levels............................... 4.00% 4.00% 4.00% -- -- --
</TABLE>

The pension and other postretirement benefit curtailment losses for the
twelve months ended September 30, 2000 represent the recognition of prior
service costs and transition obligations, and an increase in the benefit
obligations resulting from special termination benefits, related to the
reduction in the number of employees due to ComEd's December 1999 sale of the
fossil stations.

The health care cost trend rates used to measure the expected cost of the
postretirement medical benefits are assumed to be 7.5% for pre-Medicare
recipients and 5.5% for Medicare recipients for 2000. Those rates are assumed
to decrease in 0.5% annual increments to 5% for the years 2005 and 2001,
respectively, and to remain level thereafter. The health care cost trend
rates, used to measure the expected cost of postretirement dental and vision
benefits, are a level 3.5% and 2.0% per year, respectively. Assumed health
care cost trend rates have a significant effect on the amounts reported

30
<PAGE>

COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES

NOTES TO FINANCIAL STATEMENTS--Continued

for the health care plans. A one percentage point change in the assumed health
care cost trend rates would have the following effects:

<TABLE>
<CAPTION>
1 Percentage 1 Percentage
Point Increase Point Decrease
-------------- --------------
(Thousands of Dollars)
<S> <C> <C>
Effect on total annual service and interest cost
components...................................... $ 23,000 $ (18,000)
Effect on postretirement benefit obligation as of
September 30, 2000.............................. 195,000 (155,000)
</TABLE>

In addition, an employee savings and investment plan is available to
eligible employees of ComEd. Under the plan, each participating employee may
contribute up to 20% of such employee's base pay and 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 $7 million and $9 million for the three months
ended September 30, 2000 and 1999, respectively, $23 million and $24 million
for nine months ended September 30, 2000 and 1999, respectively, and $31
million and $32 million for the twelve months ended September 30, 2000 and
1999, respectively.

(16) Separation Plan Costs. O&M expenses included $33 million and $2 million
for the three months ended September 30, 2000 and 1999, respectively, $47
million and $7 million for the nine months ended September 30, 2000 and 1999,
respectively, and $50 million and $23 million for the twelve months ended
September 30, 2000 and 1999, respectively, for costs related to voluntary
separation offers to certain employees of ComEd, other than costs related to
the fossil plant sale, as well as certain other employee-related costs. Such
costs resulted in charges of $20 million (after-tax) and $1 million (after-
tax) for the three months ended September 30, 2000 and 1999, respectively, $28
million (after-tax) and $4 million (after-tax) for the nine months ended
September 30, 2000 and 1999, respectively, and $30 million (after-tax) and
$14 million (after-tax) for the twelve months ended September 30, 2000 and
1999, respectively. See Note 4 regarding employee separation costs related to
the fossil plant sale.

(17) Income Taxes. The components of the net deferred income tax liability
at September 30, 2000 and December 31, 1999 were as follows:

<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
(Thousands of Dollars)
<S> <C> <C>
Deferred income tax liabilities:
Accelerated cost recovery and liberalized
depreciation, net of removal costs................ $2,597,341 $2,781,601
Overheads capitalized.............................. 152,271 159,836
Deferred gain on sale of fossil stations........... 458,472 --
Involuntary conversion............................. 613,449 --
Repair allowance................................... 213,020 221,502
Regulatory assets recoverable through future rates. 701,714 688,946
Deferred income tax assets:
Postretirement benefits............................ (377,847) (376,207)
Unamortized investment tax credits................. (154,588) (161,756)
Regulatory liabilities to be settled through future
rates............................................. (580,991) (596,157)
Nuclear plant closure.............................. (5,455) (5,456)
Other--net......................................... (288,882) (310,658)
---------- ----------
Net deferred income tax liability................... $3,328,504 $2,401,651
========== ==========
</TABLE>

31
<PAGE>

COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES

NOTES TO FINANCIAL STATEMENTS--Continued

The components of net income tax expense charged to continuing operations
for the three months, nine months and twelve months ended September 30, 2000
and 1999 were as follows:

Provisions for current and deferred federal and state income taxes and
amortization of investment tax credits resulted in the following effective
income tax rates for the three months, nine months and twelve months ended
September 30, 2000 and 1999:

<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 September 30 September 30
-------------------- ------------------ --------------------
2000 1999 2000 1999 2000 1999
--------- --------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Pre-tax book income
(thousands)............ $ 282,473 $ 465,300 $804,802 $841,698 $940,685 $1,044,092
Effective income tax
rate................... 30.5% 38.3% 27.5% 36.0% 26.1% 35.8%
</TABLE>

The principal differences between net income taxes charged to continuing
operations and the amounts computed at the federal statutory rate of 35% for
the three months, nine months and twelve months ended September 30, 2000 and
1999 were as follows:

32
<PAGE>

COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES

NOTES TO FINANCIAL STATEMENTS--Continued

(18) Taxes, Except Income Taxes. Provisions for taxes, except income taxes,
for the three months, nine months and twelve months ended September 30, 2000
and 1999 were as follows:

See Note 21 for additional information regarding Illinois invested capital
taxes.

(19) Lease Obligations. Future minimum rental payments at September 30, 2000
for operating leases of equipment and real property are estimated to aggregate
to $244 million, including $6 million in 2000, $26 million in 2001, $23
million in 2002, $23 million in 2003, $22 million in 2004 and $144 million in
2005-2024.

(20) 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. ComEd's net plant investment, including
construction work in progress, in Quad Cities Station on the Consolidated
Balance Sheets was $39 million at September 30, 2000.

(21) Commitments and Contingent Liabilities. Purchase commitments,
principally related to construction, nuclear fuel, and coal in support of
certain power purchase agreements approximated $769 million for ComEd at
September 30, 2000. In addition, ComEd has substantial commitments for
expected capacity payments and fixed charges related to power purchase
agreements. Upon completion of the fossil plant sale with EME, ComEd entered
into arrangements to assign or settle a substantial portion of its coal
purchase commitments and entered into purchase power agreements with EME. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," subcaption "Liquidity and Capital Resources--UTILITY OPERATIONS--
Construction Program," for additional information regarding ComEd's purchase
commitments.

ComEd is a member of NEIL which provides insurance coverage against property
damage and associated replacement power costs occurring at members' nuclear
generating facilities. 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 such that ComEd would not be
liable for any single incident. However, ComEd could be subject to assessments
in any policy year for each of three types of coverage provided. The maximum
assessments are approximately $32 million for primary property damage, $20
million for excess property damage and $7 million for replacement power.

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

33
<PAGE>

COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES

NOTES TO FINANCIAL STATEMENTS--Continued

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 $969 million in the event of an incident, limited to a
maximum of $110 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
assessment of up to $36 million in the event losses incurred under the small
number of policies in the old program exceed accumulated reserves.

Three of ComEd's wholesale municipal customers filed a complaint and request
for refund with the FERC alleging that ComEd failed to properly adjust their
rates, as provided for under the terms of their electric service contracts, to
track certain refunds made to ComEd's retail customers in the years 1992
through 1994. In the third quarter of 1998, the FERC granted the complaint and
directed that refunds be made, with interest. ComEd filed and was granted a
request for rehearing for purposes of reconsideration with the FERC. If the
order is upheld, ComEd must make refunds within 15 days of the resolution for
rehearing. ComEd's management believes an adequate reserve has been
established in connection with this case.

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. With respect to Cotter, in 1994 a federal jury returned nominal
dollar verdicts against Cotter on eight plaintiffs' claims in the 1989 cases,
which verdicts were upheld on appeal. The remaining claims in the 1989 actions
have been settled and dismissed. On July 15, 1998, a jury verdict was rendered
in Dodge vs. Cotter (United States District Court for the District of
Colorado, Civil Action No. 91-Z-1861), a case relating to 14 of the plaintiffs
in the 1991 cases. The verdict against Cotter and in favor of the plaintiffs,
after an amended judgement was issued March 11, 1999, totaled approximately $6
million, including compensatory and punitive damages, interest and medical
monitoring. Cotter appealed. On February 11, 2000, the Tenth Circuit Court of
Appeals agreed with Cotter, found that the trial judge had erred in critical
rulings and reversed the jury verdict, remanding the case for new trial. A
trial involving the next group of twelve plaintiffs is currently underway in
federal district court in Denver. Although this trial and the other 1991 cases
will necessarily involve the resolution of numerous contested issues of law
and fact, it is the Company's assessment that these actions will not have a
material impact on its financial position or operations.

34
<PAGE>

COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES

NOTES TO FINANCIAL STATEMENTS--Continued

economic loss for these events. Further, ComEd initiated expedited claim
settlements for those with primarily food spoilage claims and has paid over $4
million to date. Conditional class certification has been approved by the
Court for the sole purpose of exploring settlement talks. For purposes of such
discussions, the outages described above, as well as lesser events through
August 31, 1999, will be considered. If talks are not productive, either side
can withdraw unilaterally. The Company has repeatedly declared that it will
pay no economic damages and will vigorously defend against such claims. The
lawsuits are pending in the Circuit Court of Cook County. ComEd filed a motion
challenging the legal sufficiency of the consolidated complaints. On July 21,
2000, the judge dismissed two of the counts with prejudice, and four others
with leave to replead. The plaintiffs filed an amended complaint on August 29,
2000. ComEd has again filed a motion seeking dismissal of the pleadings. The
plaintiffs have not yet responded. The next status before the Court is set for
November 10, 2000. Argument on the motion to dismiss will likely occur in
December 2000. A portion of any settlement or verdict may be covered by
insurance and discussions with the carrier are ongoing. ComEd's management
believes adequate reserves have been established in connection with these
cases.

Following the summer 1999 service interruptions, the ICC opened a three-
phase investigation of the design and reliability of ComEd's transmission and
distribution system. At the conclusion of each phase of the investigation, the
ICC will issue reports that will include specific recommendations for ComEd
and a timetable for executing the recommendations. Although the
recommendations are not legally binding on ComEd, the ICC may enforce the
recommendations through litigation. The report on Phase I of the investigation
was released the week of January 3, 2000, which focused on the outages of July
and August 1999. The first and second of five reports on Phase II and Phase
III, focusing on the transmission and distribution system, were released
during the weeks of June 5 and June 17, respectively. The third report is
anticipated later this year. The investigation is expected to conclude by
early 2001. Since summer 1999, the Company has devoted significant resources
to improving the reliability of its transmission and distribution system. The
Company believes that the likelihood of a successful material claim resulting
from this investigation is remote. The investigation is expected to conclude
by early 2001.

In 1996, several developers of non-utility generating facilities filed
litigation against various Illinois officials claiming that the enforcement
against those facilities of an amendment to Illinois law removing the
entitlement of those facilities to state-subsidized payments for electricity
sold to ComEd after March 15, 1996 violated their rights under the federal and
state constitutions, and against ComEd for a declaratory order that their
rights under their contracts with ComEd were not affected by the amendment. On
August 4, 1999, the Illinois Appellate Court held that the developers' claims
against the State were premature, and the Illinois Supreme Court denied leave
to appeal that ruling by Order dated December 1, 1999. On April 14, 2000, the
developer of one such facility requested leave to amend its complaint to
allege claims for damages against ComEd based on breach be ComEd of an alleged
contractual obligation to pay for electricity purchased from that developer at
the state-subsidized rate. ComEd has objected to the developer's request for
leave to amend, and intends vigorously to contest any assertion by such
developer that it is entitled to any payment in excess of ComEd's avoided
costs.

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

35
<PAGE>

COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES

NOTES TO FINANCIAL STATEMENTS--Concluded

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 then Northern Illinois
Gas Company (Nicor Gas) 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. In the fourth quarter of 1999, ComEd re-
evaluated its environmental remediation strategies. As a result of this re-
evaluation, ComEd's estimate of its cost of former MGP site investigation and
remediation was increased by $68 million in the fourth quarter of 1999.
ComEd's current best estimate of its costs of former MGP site investigation
and remediation is $89 million (2000) dollars (reflecting an estimated
inflation rate of 3.0% and a discount rate of 6.5%). Such estimate, reflecting
an estimated inflation rate of 3% and before the effects of discounting, is
$176 million and is included in other liabilities on the Consolidated Balance
Sheets as of September 30, 2000. It is expected that the costs associated with
investigation and remediation of former MGP sites will be substantially
incurred through 2012, however monitoring and certain other costs are expected
to be incurred through 2042. The increase in ComEd's estimated costs of former
MGP sites of $68 million in the fourth quarter of 1999 was included in O & M
expenses on ComEd's Statements of Consolidated Operations. In addition, as of
September 30, 2000 and December 31, 1999, a reserve of $7 million and $8
million, respectively, has been included in other noncurrent liabilities on
the Consolidated Balance Sheets, representing ComEd's estimate of the
liability associated with cleanup costs of sites other than former MGP sites.
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. While ComEd may have rights of
reimbursement under insurance policies, amounts that may be recoverable from
other entities are not considered in establishing the estimated liability for
the environmental remediation costs.

The IDR has issued Notices of Tax Liability to ComEd alleging deficiencies
in Illinois invested capital tax payments for the years 1988 through 1997. The
alleged deficiencies, including interest and penalties, totaled approximately
$54 million as of September 30, 2000. ComEd has protested the notices, and the
matter is currently pending before the IDR's Office of Administrative
Hearings. Interest will continue to accumulate on the alleged tax
deficiencies.

36
<PAGE>

COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Changes in the Electric Utility Industry

ComEd's business of electric energy generation, transmission and
distribution is in a period of fundamental change. These changes are
attributable to changes in technology and regulation. 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 historically has
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 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.

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. Under FERC Order No. 888,
utilities are required 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. A companion FERC rule, Order No. 889, 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 FERC Order No. 888 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.

The 1997 Act. In December 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
was amended in June 1999.

As a result of the 1997 Act and FERC rules, prices for the supply of
electric energy are expected to change from cost-based, regulated rates to
rates determined by competitive market forces. Accordingly, the 1997 Act
provides for, among other things, gradual customer access to other electric
suppliers or a power purchase option which allows the purchase of electric
energy from ComEd at

37
<PAGE>

market based prices, and the collection of a CTC from customers who choose to
purchase electric energy from a RES or elect the power purchase option during
a transition period that extends through 2006. Effective October 1, 1999, the
CTC was established in accordance with a formula defined in the 1997 Act. The
CTC, which is 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. The CTC allows ComEd to recover some 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 may include cost control efforts,
developing new sources of revenue and asset dispositions. See "Response to
Regulatory Changes" and "Fossil Plant Sale" below for additional information.

As of June 1, 2000, more than 62,000 non-residential customers are eligible
to choose a new electric supplier or elect the purchase power option. As of
September 30, 2000, over 7,800 non-residential customers, representing
approximately 18 percent of ComEd's retail kilowatthour sales for the twelve
months prior to the introduction of open access, elected to receive their
electric energy from a RES or chose the purchase power option. The impact of
customer choice on results of operations will depend on various factors,
including the extent to which customers elect to receive energy from a RES or
the purchased power option, the development of a competitive market, the
market price for energy, the extent to which ComEd develops new sources of
revenue and the results of cost control efforts. Because of the inherent
uncertainty in these factors, ComEd is unable to predict the long term impact
of customer choice on results of operations. However, ComEd does not expect
customer choice to have a material effect in the near term as a result of the
collection of CTCs as provided by the 1997 Act.

Notwithstanding the 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. A utility may request a rate increase
during the rate freeze period only when necessary to ensure the utility's
financial viability. 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, one-half of the excess earnings must be refunded to
customers. The threshold rate of return on common equity is based on the 30-
Year Treasury Bond rate, plus 5.5% in the years 1998 and 1999, and plus 8.5%
in the years 2000 through 2004. The utility's earned return on common equity
and the threshold return on common equity are each calculated on a two-year
average basis. The earnings sharing provision is applicable only to ComEd's
earnings. In accordance with the provisions of the 1997 Act, increased
amortization of regulatory assets may be recorded, thereby reducing the earned
return on common equity, if earnings otherwise would have exceeded the maximum
allowable rate of return. The potential for earnings sharing or increased
amortization of regulatory assets could limit earnings in future periods.
ComEd's returns on average common equity

38
<PAGE>

for the years 1999 and 1998 were 11.56% and 10.86%, respectively. The average
return of 11.21% for the two year period ended December 31, 1999 equaled the
threshold return for that period under the earnings provisions of the 1997
Act. ComEd does not currently expect to trigger the earnings sharing
provisions of the 1997 Act in the years 2000 through 2004.

The 1997 Act also allows a portion of ComEd's future revenues to be
segregated and used to support the issuance of securities by ComEd or a SPE.
The proceeds, net of transaction costs, from such security issuances must be
used to refinance outstanding debt or equity or for certain other limited
purposes. In December 1998, ComEd initiated the issuance of $3.4 billion of
transitional trust notes through its SPEs, ComEd Funding and ComEd Funding
Trust. See "Liquidity and Capital Resources," subcaption "UTILITY OPERATIONS--
Capital Resources" below, and Notes 3 and 6 of Notes to Financial Statements,
for additional information regarding the redemptions and repurchases of debt
and equity.

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 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,
reliability requirement applicable to ComEd in the event of a major outage.
See "Response to Regulatory Changes" below for additional information.

See Notes 1, under "Regulatory Assets and Liabilities," and 3 of Notes to
Financial Statements for the accounting effects related to the 1997 Act.

Response to Regulatory Changes. ComEd has announced several business and
operational objectives designed to focus efforts in responding to the energy
market changes that are expected to develop from the 1997 Act. Among other
things, these strategic objectives call for a focus on operations to: (1)
provide a reliable supply of electricity as the competitive marketplace
evolves, (2) become a top quartile operator of competitive nuclear plants, (3)
deliver competitive earnings while restructuring the balance sheet to reflect
the realities of the marketplace, (4) expand the offering of energy-related
products and services, and (5) transform the corporate culture of ComEd.

Under the 1997 Act, the role of electric utilities in the supply and
delivery of energy is expected to change. Utilities, such as ComEd,
traditionally have been responsible for providing both adequate supply and
reliable delivery of electricity to customers within their service areas. In
the future, ComEd will continue to be obligated to provide a reliable delivery
system. However, ComEd will be obligated to supply electricity only to those
customers that it continues to serve under tariffs for electricity, but not
for those customers who choose to rely on the marketplace. Nonetheless, during
the transition period to a competitive supply marketplace, ComEd must provide
both an adequate supply and reliable delivery of electricity. Given the tight
capacity situation in ComEd's market, ComEd will be working to maintain its
available capacity, as well as working to assist in the development of a
competitive supply marketplace in Illinois.

ComEd has a significant commitment to, and investment in, nuclear generating
capacity. ComEd has installed a management team responsible for improving
nuclear operations. Such improvements are aimed at increasing levels of energy
generation, or capacity factors, at ComEd's nuclear generating units while
simultaneously improving ComEd's record of meeting NRC requirements and INPO
performance standards. Increased capacity factors generally result in lower
unit production costs and an improved opportunity to generate and sell
electricity in a competitive marketplace. Efforts are also being made to
control capital and operating costs through increased efficiencies, such as
the reduction of downtime and expenses associated with generating unit
maintenance and refueling outages.

39
<PAGE>

In December 1999, FERC issued an order known as "Order 2000" requiring
jurisdiction utilities to file a proposal for an RTO meeting certain
governance, operational, and scope and scale requirements articulated in the
order or, alternatively, to describe efforts to participate in or work toward
participating in an RTO or explain why they were not participating in an RTO.
Order 2000 is generally designed to separate the governance and operation of
the transmission system from generation companies and other market
participants. It has sparked a consideration of various structural mechanisms
for owning and operating transmission facilities, including so-called
independent system operators or "ISOs" (such as the Midwest Independent System
Operator or "MISO"), which are generally not-for-profit entities and which
would operate but not own transmission facilities, as well as independent for-
profit transmission companies, and other structures. ComEd has been a member
of the MISO and has participated with other utilities in evaluating the
formation of an independent transmission company operating within the
oversight of the MISO.

As a result of that evaluation, and in consideration of the recently
completed transaction in which Exelon Corporation was formed as the holding
company for ComEd and PECO, ComEd believes that continued participation in the
MISO is not in its best interests given circumstances as they now stand.
Consequently, on October 31, 2000, ComEd notified the MISO of its intention to
withdraw and to join the Alliance Regional Transmission Organization, an RTO
being established by American Electric Power, Consumers Energy, Detroit
Edison, Virginia Electric & Power and FirstEnergy. ComEd's withdrawal from the
ISO is subject to regulatory approval. As a result of the Exelon transaction,
ComEd believes that Exelon has the right to withdraw ComEd's facilities from
participation in the MISO as of October 31, 2001, subject to FERC approval,
and that its responsibility for start-up costs associated with the MISO under
the transmission owners' agreement will not be material. The MISO is expected
to oppose this view and has argued, among other things, that the provision
allowing earlier withdrawal in the case of a merger is not applicable to the
Exelon transaction and that the applicable date is the end of the year
following the fifth anniversary of ComEd's execution of the transmission
owners' agreement, which would be December 31, 2000, unless the Federal Energy
Regulatory Commission permits earlier withdrawal. MISO may also dispute
ComEd's view of its responsibility for costs MISO has and will continue to
incur. If ComEd's view of its right to withdraw and responsibility for costs
is challenged and does not prevail, then the costs associated with ComEd's
withdrawal may be material.

Merger Agreement. On October 19, 2000, Unicom and PECO received approval
from the Securities and Exchange Commission under the Public Utilities Holding
Company Act of 1935, the last regulatory approval, to complete their merger to
form Exelon Corporation. The companies completed the merger on October 20,
2000 and began trading as Exelon Corporation (NYSE: EXC) on October 23, 2000.

40
<PAGE>

Consistent with Unicom's $1 billion share repurchase commitment in the
merger agreement with PECO, Unicom has completed the repurchase of 24 million
shares of its common stock. The shares were repurchased from the open market
over the recent ten months pursuant to agreements with financial institutions.
Approximately $153 million of these share repurchases were funded with
proceeds from the 1998 issuance of transitional trust notes. The remaining
share repurchases will be funded from available funds, including funds
ultimately resulting from the fossil plant sale. These share repurchases are
in addition to 26.3 million shares of Unicom common stock that Unicom
repurchased in January 2000 upon settlement of certain forward purchase
contracts. See Note 6 of Notes to Financial Statements for additional
information.

ComEd and PECO are undertaking steps to transfer their generating assets and
wholesale power marketing operations to subsidiaries following the
consummation of the merger. Subsequent to those transfers, these subsidiaries
will be transferred to Exelon and ultimately will be combined into a power
generation and marketing company, which will be a direct subsidiary of Exelon
("Genco"). In ComEd's case, the transfer will include its Braidwood, Byron,
Dresden, LaSalle and Quad Cities nuclear generating stations representing an
aggregate generating capability of 9,566 megawatts, its Zion station, its
rights and obligations under various power purchase agreements, the assets
constituting its nuclear decommissioning trusts and its wholesale power
marketing business. Genco will enter into a power purchase agreement with
ComEd in which Genco will undertake to supply ComEd's full requirements for
electric energy through 2004 and all of ComEd's requirements up to the
available capacity of the nuclear generating stations in 2005 and 2006. On
August 3, the NRC approved the request of ComEd and PECO to transfer licenses
for both companies' nuclear plants from ComEd and PECO to Exelon Generating
Company to be formed in connection with the proposed merger.

As part of the transfer of the nuclear generating stations, Genco is to
assume responsibility for the decommissioning of those stations, including
Zion Station and Dresden Unit 1, subject to an obligation of ComEd to continue
to collect decommissioning-related charges from its customers. In May 2000,
ComEd filed a petition with the ICC seeking approval to revise its existing
decommissioning rider to its rates. Under the proposed revision, ComEd would
collect approximately $121 million annually for a period of six years, after
which the decommissioning rider and collection of decommissioning funds would
end. On October 25, 2000, an ICC hearing examiner issued a proposed order
denying ComEd's petition on the basis that existing law does not allow the ICC
to authorize ComEd to continue to collect funds for decommissioning nuclear
generating plants that it no longer owns. ComEd believes that the proposed
order is wrong as a matter of law and that the ICC has the statutory authority
to grant ComEd's petition. The ICC is not bound by the proposed order and may
accept or reject it, in whole or in part, in preparing its final order in the
proceedings. Responses from the parties to the proceedings regarding the
proposed order are due in early November and a final order is expected before
year-end. ComEd is evaluating the effect of the proposed order on the proposed
structure of the Genco transaction. The transfer of the nuclear assets,
including the decommissioning trust funds, are subject to satisfactory
resolution of significant regulatory and tax issues.

The Amended and Restated Agreement and Plan of Exchange and Merger, dated as
of January 7, 2000, was filed on January 13, 2000 by Unicom with the SEC as an
exhibit to a Form 8-K, and reference to that filing is made for more detailed
information.

Fossil Plant Sale. In December 1999, ComEd completed the sale of its fossil
generating assets to EME for a cash purchase price of $4.8 billion. The fossil
plant assets represent an aggregate generating capacity of approximately 9,772
megawatts.

41
<PAGE>

Just prior to the consummation of the fossil plant sale, ComEd transferred
these assets to an affiliate, Unicom Investment. In consideration for the
transferred assets, Unicom Investment paid ComEd consideration totalling
approximately $4.8 billion in the form of a demand note in the amount of
approximately $2.4 billion and an interest-bearing Note with a maturity of
twelve years. Unicom Investment immediately sold the fossil plant assets to
EME, in consideration of which Unicom Investment received approximately $4.8
billion in cash from EME. Immediately after its receipt of the cash payment
from EME, Unicom Investment paid the $2.4 billion aggregate principal due to
ComEd under the demand note. Unicom Investment will use the remainder of the
cash received from EME to fund other business opportunities. Of the cash
received by ComEd, $1.5 billion has been used to pay the costs and taxes
associated with the fossil plant sale including ComEd's contribution of $250
million to an environmental trust as required by the 1997 Act. The remainder
of the demand note proceeds will be available to ComEd to fund, among other
things, transmission and distribution projects, nuclear generation station
projects, and environmental and other initiatives. See Note 1 of Notes to
Financial Statements, under "Investment in Leases," for additional
information.

The sale produced an after-tax gain of approximately $1.6 billion, after
recognizing commitments associated with certain coal contracts ($350 million),
recognizing employee-related costs ($112 million) and contributing to the
environmental trust. The coal contract costs include the amortization of the
remaining balance of ComEd's regulatory asset for unrecovered coal reserves of
$178 million and the recognition of $172 million of settlement payments
related to the above-market portion of coal purchase commitments ComEd
assigned to EME at market value upon completion of the fossil plant sale. The
severance costs included pension and post-retirement welfare benefit
curtailment and special termination benefit costs of $51 million and
transition, separation and retention payments of $61 million. A total of 1,730
fossil station employee positions were eliminated upon completion of the
fossil plant sale on December 15, 1999. The employees whose positions were
eliminated have been terminated. Consistent with the provisions of the 1997
Act, the (pre-tax) gain on the sale of $2.587 billion resulted in a regulatory
liability, which was used to recover regulatory assets. Therefore, the gain on
the sale, excluding $43 million of amortization of investment tax credits, was
recorded as a regulatory liability in the amount of $2.544 billion and
amortized in the fourth quarter of 1999. The amortization of the regulatory
liability and additional regulatory asset amortization of $2.456 billion are
reflected in depreciation and amortization expense on ComEd's Statement of
Consolidated Operations and resulted in a net reduction to depreciation and
amortization expense of $88 million.

As part of the sale transaction, ComEd entered into transitional, limited
term power purchase agreements with the buyer. Such purchase power agreements
will increase ComEd's purchased power costs.

Liquidity and Capital Resources

UTILITY OPERATIONS

Construction Program. ComEd's construction program for the year 2000
principally covers improvements to its nuclear production, transmission and
distribution facilities. The amount shown below for transmission and
distribution expenditures reflects a current reevaluation of the level of
expenditures required this year to support ComEd's ongoing intensive efforts
to improve the reliability of its transmission and distribution systems. A
significant portion of the transmission and distribution expenditures reflects
management decisions to adopt new design criteria that will improve
reliability and reduce the number and duration of power outages, and to
accelerate the pace of certain

42
<PAGE>

projects that had been scheduled for completion after 2000. Current estimates
of construction expenditures (excluding nuclear fuel expenditures of
approximately $260 million) are as follows:
<TABLE>
<CAPTION>
2000
------
(Millions
of Dollars)
<S> <C> <C> <C> <C>
Nuclear................................................. $ 210
Transmission and Distribution........................... 764
General................................................. 159
------
$1,133
======
</TABLE>

The construction expenditures in the above table reflect an increase of
approximately $26 million from previously reported levels. The increased
transmission and distribution expenditures will be used to fund infrastructure
improvement projects, including the expansion of substation and line capacity
in Chicago and suburban locations, upgrading transmission lines and the
installation of monitoring equipment that is designed to identify distribution
problems faster and restore power to customers more quickly. ComEd has
experienced improved reliability of its distribution system during the past
twelve months as measured by a reduction in the number and duration of power
outages.

ComEd is currently evaluating its construction expenditures for the years
2001 and 2002 and expects expenditures for transmission and distribution
construction to remain above historic expenditure levels in order to attain
additional improvements in overall system reliability.

Purchase commitments for ComEd, principally related to construction, nuclear
fuel and coal in support of certain power purchase agreements approximated
$769 million at September 30, 2000. In addition, ComEd's estimated commitments
for expected capacity payments and fixed charges related to power purchase
agreements were as follows:

<TABLE>
<CAPTION>
Commitments(1)
Period ($Millions)
------ --------------
<S> <C>
2000 (Oct. through Dec.)........... $ 87
2001............................... 700
2002............................... 585
2003-2004.......................... 927
2005-2012.......................... 917
------
$3,216
======
</TABLE>
--------
(1) Capacity payments may be adjusted based on certain conditions. No
estimate of future cost escalation has been made.

See "Changes in the Electric Utility Industry," subcaptions "The 1997 Act"
and "Fossil Plant Sale" above, for additional information.

Capital Resources. In December 1998, ComEd initiated the issuance of $3.4
billion of transitional trust notes through its SPEs, ComEd Funding and ComEd
Funding Trust. The proceeds from the transitional trust notes, net of
transaction costs, were, as required, used to redeem $1,101 million of long-
term debt and $607 million of preference stock in 1999 and reduce by $500
million ComEd's outstanding short-term debt. During the year 1999, ComEd
recorded an extraordinary loss related to the early redemptions of such long-
term debt, which reduced net income on common stock by approximately $28
million (after-tax). ComEd also recorded $12 million (after-tax) for premiums
paid in connection with the redemption of such preference stock. The
preference stock premiums were included in the provision for dividends for
preference stocks of ComEd on the Statements of Consolidated Operations.
Unicom has also repurchased shares of its common stock using $1,104 million of
proceeds it received from ComEd's repurchase of its common stock held by
Unicom. The balance of proceeds were used for the payment of fees and other
debt issuance costs totaling $23 million and a $17 million collateral
requirement related to the transitional trust notes.

43
<PAGE>

In January 2000, Unicom physically settled the forward share repurchase
arrangements it had with financial institutions for the repurchase of 26.3
million Unicom common shares. Prior to settlement, the repurchase arrangements
were recorded as a receivable on Unicom's Consolidated Balance Sheets based on
the aggregate market value of the shares under the arrangements. In 1999, net
unrealized losses of $44 million (after-tax) were recorded related to the
arrangements. The settlement of the arrangements in January 2000 resulted in a
gain of $113 million (after-tax), which was recorded in the first quarter of
2000. The settlement of the arrangements resulted in a reduction in Unicom's
outstanding common shares and common stock equity, effective January 2000.

ComEd forecasts that internal sources will provide approximately three-
fourths of the funds required for ComEd's 2000 construction program and other
capital requirements, including nuclear fuel expenditures, contributions to
nuclear decommissioning funds, sinking fund obligations and scheduled debt
maturities. See Notes 9 and 11 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.

See "Changes in the Electric Utility Industry," subcaption "Fossil Plant
Sale" above, for a description of ComEd's planned uses of the fossil plant
sale proceeds.

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. ComEd had total unused bank lines of credit of $800 million at
September 30, 2000, which may be borrowed at various interest rates. Of that
amount, $500 million expires on December 15, 2000 and $300 million expires on
December 17, 2002. 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. See Note 12 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 three months, nine months and twelve months ended
September 30, 2000 and 1999.

As of September 30, 2000, ComEd has an effective "shelf" registration
statement with the SEC for the future sale of up to an additional $280 million
of debt securities and cumulative preference stock for general corporate
purposes of ComEd, including the discharge or refund of other outstanding
securities.

On October 20, 2000, following the announcement of the SEC's approval of the
merger of Unicom and PECO, Moody's and Fitch affirmed their ratings of ComEd's
securities. On October 18, 2000, S&P raised their ratings of ComEd's
securities. The current ratings are as follows:

<TABLE>
<CAPTION>
Standard
Moody's & Poor's Fitch
------- -------- -----
<S> <C> <C> <C>
First mortgage and secured pollution control bonds...... Baa1 A- A-
Publicly-held debentures and unsecured pollution control
obligations............................................ Baa2 BBB+ BBB+
Convertible preferred stock............................. baa3 BBB BBB
Preference stock........................................ Baa2 BBB BBB
Trust Securities........................................ baa3 BBB BBB
Commercial paper........................................ P-2 A-2 F-2
</TABLE>

ComEd Funding Trust's securities are currently rated by three principal
securities rating agencies as follows:

<TABLE>
<CAPTION>
Standard
Moody's & Poor's Fitch
------- -------- -----
<S> <C> <C> <C>
Transitional trust notes........................... Aaa AAA AAA
</TABLE>

44
<PAGE>

Capital Structure. ComEd's ratio of long-term debt to total capitalization
has increased to 59.2% at September 30, 2000 from 55.2% at December 31, 1999,
primarily due to the repurchase of common stock in the first nine months of
2000. As of September 30, 2000 and December 31, 1999, $1,210 million and $852
million, respectively, of retained earnings had been appropriated for ComEd's
future dividend payments.

New Customer Information and Billing system. In July 1998, ComEd began a
transition to a new customer information and billing system. The new system
was implemented to achieve a number of strategic objectives as the electric
industry enters into a more competitive environment. Following the July 1998
initial implementation, ComEd experienced delays in issuing bills on a timely
basis to a portion of its commercial and industrial customers. ComEd also
temporarily suspended credit activities from late in the third quarter of 1998
until the end of the first quarter of 1999 as a result of system
implementation issues. The system stabilized gradually throughout 1999 such
that by the fourth quarter of 1999 substantially all customers were being
billed on a current basis. Operating results for twelve months ended September
30, 1999 were adversely affected by increased labor and overtime costs
incurred to address the billing issues, and by increased charges for
uncollectible accounts of approximately $35 million resulting from the billing
and collection delays and the temporary suspension of credit activities. Cash
flows from operations were adversely affected in the twelve months ended
September 30, 1999 and positively affected in the twelve months ended
September 30, 2000 as a result of the billing delays experienced due to
implementation. Receivables from customers as of September 30, 2000 and
December 31, 1999 include $53 million and $103 million, respectively, for
estimated unbilled revenues for service that has been provided to customers
but for which bill issuance was delayed beyond the normal date of issuance.
See "Results of Operations," subcaption "Operation and Maintenance Expenses"
below, and Note 1 of Notes to Financial Statements, under "Customer
Receivables and Revenues" and "Use of Estimates," for additional information.

Market Risks. ComEd is exposed to market risk due to changes in interest
rates and 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 manage
effectively the supply of, and demand for, the electric generation capability
of ComEd's generating plants. ComEd has implemented an integrated risk
management framework to manage such risks. A corporate Risk Management
Committee defines the Company's risk tolerance and establishes appropriate
position limits, and corporate policies and procedures have been implemented
to minimize the exposure to market risk. ComEd does not currently utilize
derivative commodity or financial instruments for trading or speculative
purposes.

See "Energy Risk Management Contracts" in Note 1 of Notes to Financial
Statements regarding the accounting for energy risk management contracts.

Market Price Exposure. ComEd's energy purchases from other suppliers have
increased as a result of reductions in owned generating capability and system
load growth. The market price of energy is subject to price volatility
associated with changes in supply and demand in the electric supply markets.
In the normal course of business, ComEd utilizes contracts for the forward
sale and purchase of energy to assure system reliability and manage
effectively 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. The
estimated September 30, 2000 fair value of the forward contracts, including
options, for the purchase and sale of energy for the years 2000 through 2007,
was approximately $10 million. The estimated fair value is based on the
estimated net settlement value of the contracts derived from forward price
curves and market quotes, discounted at a 10% rate. A 10% increase in the
forward price of electricity would decrease the September 30, 2000 fair value
of the forward energy contracts for the years 2000-2007 by approximately $100
million, of which approximately $50 million is for contracts for the period

45
<PAGE>

2000-2002. Likewise, a 10% decrease would increase the fair value of the
energy contracts by approximately $100 million. Notwithstanding these price
risk management activities, an unexpected loss of generating capability or
reduction in demand could increase ComEd's exposure to market price risks and
could have a material adverse effect on operating results.

Regulation

ComEd and Indiana Company are subject to federal and state regulation in the
conduct of their respective businesses. 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. See "Changes in the Electric Utility Industry," subcaption
"The 1997 Act" above, for information regarding the effect of the 1997 Act on
rate matters.

Nuclear Matters. Nuclear operations have been, and remain, an important
focus of ComEd. ComEd operates five nuclear plants--Braidwood, Byron, Dresden,
LaSalle and Quad Cities Stations, and is committed to safe, reliable and
efficient operation.

On May 6, 1999, ComEd's LaSalle Station was officially removed from the
NRC's listing of plants that require increased regulatory scrutiny. LaSalle
Station had been on this list since January 1997. Concurrent with the LaSalle
Station action, the NRC announced the formal removal of the Quad Cities
Station from its list of plants with declining performance trends. Quad Cities
Station had been on the declining trend list since January 1998. With these
actions, all of ComEd's nuclear plants are now placed in the NRC's "routine
oversight" category.

The NRC and representatives of ComEd's management have met, and will
continue to meet periodically as part of the NRC's normal oversight process,
to discuss the overall performance of the ComEd nuclear program.

Based on ComEd's most recent study, decommissioning costs are estimated to
be $5.6 billion in current-year (2000) dollars, including a contingency
allowance. These expenditures are expected to occur primarily during the
period from 2007 through 2034. All 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.

Since 1995, ComEd has collected decommissioning costs from its ratepayers in
conjunction with a rider to its tariffs. The rider allows annual adjustments
to decommissioning cost collections outside the context of a traditional rate
proceeding and will continue under the 1997 Act. See Note 1 of Notes to
Financial Statements, under "Depreciation, Amortization of Regulatory Assets
and Liabilities, and Decommissioning," for additional information regarding
decommissioning costs.

Environmental Matters. ComEd is involved in administrative and legal
proceedings concerning air quality, water quality and other matters. The
outcome of these proceedings may require increases in future construction
expenditures and operating expenses and changes in operating procedures. See
Note 21 of Notes to Financial Statements for additional information.

46
<PAGE>

Results of Operations

ComEd's operating results for the three months, nine months and twelve
months ended September 30, 2000 and 1999 were as follows:

<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 September 30 September 30
------------------- ----------------- ---------------------
2000 1999 2000 1999 2000 1999
--------- --------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net income before Ex-
traordinary Income..... $ 196,246 $ 287,049 $583,642 $539,014 $ 694,936 $ 670,862
========= ========= ======== ======== ========== ==========
Net Income on Common
Stock.................. $ 196,201 $ 285,219 $577,191 $491,265 $ 684,900 $ 609,292
========= ========= ======== ======== ========== ==========
</TABLE>

Net Income for the Three Months Ended September 30, 2000. The decrease in
ComEd's net income in the recent three-month period reflects, among other
factors, ComEd's increased energy costs, higher O&M expenses and increased
regulatory asset amortization, partially offset by improved nuclear operating
performance.

Net Income for the Nine Months Ended September 30, 2000. The increase in
ComEd's net income in the recent nine-month period reflects, among other
factors, the continued improvement of ComEd's nuclear fleet, increased
kilowatthour sales, lower O&M expenses, lower financing costs and a reduction
in ComEd's outstanding shares partially offset by higher energy costs.

Net Income for the Twelve Months Ended September 30, 2000. The increase in
earnings for the twelve-month period was primarily due to increased off-system
kilowatthour sales, the sale of ComEd's fleet of fossil stations, lower
financing costs, a reduction in ComEd's outstanding common shares, partially
offset by increased regulatory asset amortization, higher energy costs and
higher O&M expenses.

Operating Revenues. ComEd's electric operating revenues reflect revenues
from sales to ultimate consumers (including residential, commercial and
industrial customers within its service territory) and revenues from sales for
resale (i.e., sales to wholesale customers, principally other electric
utilities). Operating revenues are affected by kilowatthour sales and rate
levels. 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 are affected by a number of
factors, including nuclear generating station availability and performance.
See Note 1 of Notes to Financial Statements, under "Use of Estimates" and
"Customer Receivables and Revenues", for additional information.

ComEd's operating revenues increased $17 million for the three months ended
September 30, 2000, compared to the three months ended September 30, 2000,
primarily due to a $120 million increase in off-system sales and other
revenues offset by a $103 million reduction in sales to retail customers.
ComEd's operating revenues increased $71 million for the nine months ended
September 30, 2000, compared to the nine months ended September 30, 2000,
primarily due to a $354 million increase in off-system sales and other
revenues partially offset by a $284 million reduction in sales to retail
customers. ComEd's operating revenues increased $7 million for the twelve
months ended September 30, 2000, compared to the twelve months ended September
30, 2000 due to a $378 million increase in off-system sales and other revenues
partially offset by a $353 million reduction in sales to retail customers.

47
<PAGE>

Energy Costs. Energy costs are currently affected primarily by system load,
the cost of nuclear fuel consumed, the availability and net generation of
ComEd's nuclear generating units, the PPAs ComEd entered into upon the sale of
its fossil stations and the availability and cost of power from other
utilities. Prior to the sale of ComEd's fossil stations, energy costs were
also affected by changes in the cost of fossil fuels consumed and changes in
the mix of fuel sources of electric energy generated. Energy costs,
electricity available for sale and fuel sources of kilowatthour generation
were as follows:

<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended Twelve Months Ended
September 30 September 30 September 30
------------------------------ ---------------------------------- ----------------------------------
2000 1999 2000 1999 2000 1999
-------------- -------------- ---------------- ---------------- ---------------- ----------------
Cost Cost Cost Cost Cost Cost
Energy per Energy per Energy per Energy per Energy per Energy per
Costs Kwh Costs Kwh Costs Kwh Costs Kwh Costs Kwh Costs Kwh
-------- ---- -------- ---- ---------- ---- ---------- ---- ---------- ---- ---------- ----
(000's) (000's) (000's) (000's) (000's) (000's)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cost of energy:
Electricity (ComEd)
Fuel
Nuclear........... $ 97,207 0.48c $107,455 0.53c $ 294,046 0.49c $ 287,778 0.52c $ 386,758 0.49c $ 371,987 0.52c
Coal.............. -- -- 160,893 2.19 -- -- 431,719 2.30 94,177 2.08 589,151 2.37
Oil............... -- -- 4,475 5.69 -- -- 6,659 5.07 1,195 9.09 8,276 5.81
Natural gas....... -- -- 29,358 2.80 -- -- 70,498 2.98 12,524 5.91 80,285 3.11
Purchased power.... 691,993 5.84 249,375 7.74 1,290,938 4.35 419,358 5.81 1,423,155 4.18 520,987 5.52
-------- -------- ---------- ---------- ---------- ----------
Total electric
energy cost...... $789,200 2.46c $551,556 1.73c $1,584,984 1.76c $1,216,012 1.46c $1,917,809 1.63c $1,570,686 1.45c
======== ======== ========== ========== ========== ==========
Electricity
available for sale
(millions of
kilowatthours)
Generation--net... 20,223 28,627 60,293 76,319 83,659 99,021
Purchased power... 11,851 3,222 29,684 7,215 34,030 9,445
-------- -------- ---------- ---------- ---------- ----------
Total available
for sale......... 32,074 31,849 89,977 83,534 117,689 108,466
======== ======== ========== ========== ========== ==========
Sources of
kilowatthour
generation
available for
sale:
Fuel
Nuclear........... 63% 64% 67% 66% 67% 66%
Coal.............. -- 23 -- 22 4 23
Oil............... -- -- -- -- -- --
Natural gas....... -- 3 -- 3 -- 2
Purchased power... 37 10 33 9 29 9
-------- -------- ---------- ---------- ---------- ----------
100% 100% 100% 100% 100% 100%
======== ======== ========== ========== ========== ==========
</TABLE>

Higher energy costs for the three months, nine months and twelve months
ended September 30, 2000 resulted primarily from the effects of the PPAs ComEd
entered into upon the sale of its fleet of fossil stations which increase
purchased power costs but are offset by lower depreciation and O&M expenses.
See "Regulation," subcaption "Nuclear Matters" above, for information
regarding ComEd's nuclear generating stations. For additional information
concerning ComEd's purchase power commitments see "Liquidity and Capital
Resources," subcaption "UTILITY OPERATIONS--Construction Program," above and
Note 21 of Notes to Financial Statements.

48
<PAGE>

The market price for electricity is subject to price volatility associated
with changes in supply and demand in the electric supply markets. ComEd
utilizes energy put and call option contracts and energy swap arrangements to
limit market price risk associated with forward commodity contracts. See
"Liquidity and Capital Resources," subcaption "UTILITY OPERATIONS--Market
Risks" above, for additional information.

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 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 period. A major component
of such expenses, however, is the cost associated with operating and
maintaining ComEd's nuclear generating facilities. Generating station expenses
are affected by the cost of materials, regulatory requirements and
expectations, the age of facilities and cost control efforts.

During the three months, nine months and twelve months ended September 30,
2000, the aggregate level of O&M expenses increased 12%, decreased 2% and
increased 1%, respectively, compared to the same periods ended September 30,
1999.

O&M expenses associated with nuclear generating stations increased $21
million, and decreased $62 million and $100 million during the three months,
nine months and twelve months ended September 30, 2000, respectively, compared
to the same periods ended September 30, 1999. The increase in the recent
three-month period is due to refueling outages which began in mid-September.
There were no refueling outages in the third quarter of 1999. The decreases in
the recent nine-month and twelve-month periods were due to shorter refueling
outages and fewer forced outages.

O&M expenses associated with ComEd's fossil generating stations sold in
December 1999 were $51 million for the three months and $183 million for the
nine months ended September 30, 1999 and $37 million and $248 million for the
twelve months ended September 30, 2000 and September 30, 1999, respectively.

O&M expenses associated with ComEd's transmission and distribution system
increased $13 million, $85 million and $104 million for the three months, nine
months and twelve months ended September 30, 2000, respectively, compared to
the same periods ended September 30, 1999. The increases for the recent three-
month, nine-month and twelve-month periods were primarily due to ComEd's
intensive efforts to improve the reliability of its transmission and
distribution systems. O&M expenses associated with customer related activities
decreased $16 million, $15 million and $2 million for the three months, nine
months and twelve months ended September 30, 2000, respectively, compared to
the same periods ended September 30, 1999. The decrease in the recent three-
month, nine-month and twelve-month periods were primarily due to decreased
credit and collection activity and lower overtime and labor costs incurred
during the recent three-month, nine-month and twelve-month periods to address
billing problems encountered following the implementation of a new customer
information and billing system in July 1998.

O&M expenses for the twelve months ended September 30, 2000 reflect an
increase of $68 million in ComEd's estimated environmental liability for the
remediation of former manufactured gas plant sites compared to the same period
ended September 30, 1999. O&M expenses for the nine and twelve months ended
September 30, 1999 also reflect increased charges of $25 million and $35
million, respectively, for uncollectible accounts resulting from billing and
collection delays experienced following the ongoing implementation of a new
customer information system and the temporary suspension of credit activities
in the last half of 1998 and early 1999.

O&M expenses also include employee benefits expenses. Since 1995, ComEd has
reduced the size of its workforce by offering incentives for employees to
leave the company voluntarily. Such incentives

49
<PAGE>

included both current payments and earlier eligibility for postretirement
health care benefits, in addition to certain other employee-related costs,
resulting in charges of $33 million and $2 million for the three months ended
September 30, 2000 and 1999, respectively, $47 million and $7 million for the
nine months ended September 30, 2000 and 1999, respectively, and $50 million
and $23 million for the twelve months ended September 30, 2000 and 1999,
respectively, other than costs related to the fossil plant sale.

Other ComEd employee benefits expenses, excluding the effects of employee
separation plans and certain other employee-related costs increased
$18 million and decreased $20 million and $29 million for the three months,
nine months and twelve months ended September 30, 2000, respectively, compared
to the same periods ended September 30, 1999. The increase for the recent
three-month period was primarily due to higher accruals for incentive
compensation. The decreases for the recent nine-month and twelve-month periods
were primarily due to a reduction in pension costs and medical costs for
active and retired employees.

O&M expenses also include increases of $9 million, $26 million and $26
million for the recent three, nine and twelve months ended September 30, 2000,
respectively, for expenses, other than severance, incurred in connection with
the merger with PECO.

O&M expenses included a $25 million charge for the nine months and twelve
months ended September 30, 1999 as a result of a franchise related settlement
agreement between ComEd and the City.

O&M expenses also include increases of $28 million, $52 million and $52
million for the recent three, nine and twelve months ended September 30, 2000,
respectively, for the rental of gas and diesel peaking units.

O&M expenses decreased $47 million, $76 million and $51 million for the
three, nine and twelve months ended September 30, 2000, compared to the same
periods ended September 30, 1999, due to lower administrative and general
costs.

Depreciation, Amortization and Decommissioning. Depreciation, amortization
and decommissioning expense increased $26 million, $126 million and $39
million for the three months, nine months and twelve months ended September
30, 2000, respectively, compared to the same periods ended September 30, 1999.
The regulatory asset amortization recorded for the three months, nine months
and twelve months ended September 30, 2000 represent amounts calculated in
accordance with the earnings cap provisions of the 1997 Act. Consistent with
the provisions of the 1997 Act, the (pre-tax) gain on the fossil plant sale of
$2.587 billion resulted in a regulatory liability, which was used to recover
regulatory assets. Therefore, the gain on the sale, excluding $43 million of
amortization of investment tax credits, was recorded as a regulatory liability
in the amount of $2.544 billion and amortized in the fourth quarter of 1999.
The amortization of the regulatory liability and additional regulatory asset
amortization of $2.456 billion are reflected in depreciation and amortization
expense on ComEd's Statements of Consolidated Operations and resulted in a net
reduction to depreciation and amortization expense of $88 million for the
twelve months ended September 30, 2000. See Note 1 of Notes to Financial
Statements, under "Depreciation, Amortization of Regulatory Assets and
Liabilities, and Decommissioning," for additional information.

Interest on Debt. Changes in interest on long-term debt and notes payable
for the three months, nine months and twelve months ended September 30, 2000,
compared to the same periods ended September 30, 1999, were due to changes in
average interest rates and in the amounts of long-term debt and notes payable
outstanding. Changes in interest on ComEd's long-term debt also reflected new
issues of debt, the retirement and early redemption of debt, and the
retirement and

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<PAGE>

redemption of issues which were refinanced at generally lower rates of
interest. See Notes 3 and 6 of Notes to Financial Statements for information
regarding the redemptions and repurchases of debt and equity. The average
amounts of ComEd's long-term debt and notes payable outstanding and average
interest rates thereon were as follows:

<TABLE>
<CAPTION>
Nine Months
Three Months Ended Ended Twelve Months Ended
September 30 September 30 September 30
-------------------- -------------- --------------------
2000 1999 2000 1999 2000 1999
--------- --------- ------ ------ --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Long-term debt outstand-
ing:
Average amount
(millions)............ $ 7,163 $ 7,998 $7,360 $8,227 $ 7,469 $ 7,671
Average interest rate.. 7.12% 6.77% 6.96% 6.76% 6.90% 7.01%
Notes payable outstand-
ing:
Average amount
(millions)............ $ 437 $ 381 $ 271 $ 298 $ 300 $ 311
Average interest rate.. 6.87% 5.50% 6.75% 5.84% 6.44% 5.59%
</TABLE>

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
and Interest Capitalized." In accordance with SFAS No. 34, Capitalization of
Interest Cost, ComEd capitalized $2 million and $4 million for the three
months ended September 30, 2000 and 1999, respectively, $4 million and $16
million for the nine months ended September 30, 2000 and 1999, respectively,
and $10 million and $31 million for the twelve months ended September 30, 2000
and 1999, respectively, of interest costs on its generation-related
construction work in progress and nuclear fuel in process. AFUDC and interest
capitalized do not contribute to the current cash flow of ComEd.

ComEd's ratios of earnings to fixed charges for the twelve months ended
September 30, 2000 and December 31, 1999 were 2.48 and 2.45, respectively.
ComEd's ratios of earnings to fixed charges and preferred and preference stock
dividend requirements for the twelve months ended September 30, 2000 and
December 31, 1999 were 2.44 and 2.32, respectively.

Business corporations, in general, have been adversely affected by inflation
because amounts retained after the payment of all costs have been inadequate
to replace, at increased costs, the productive assets consumed. Electric
utilities, in particular, have been especially affected as a result of their
capital intensive nature and regulation which limits capital recovery and
prescribes installation or modification of facilities to comply with
increasingly stringent safety and environmental requirements. Because the
regulatory process limits the amount of depreciation expense included in
ComEd's revenue allowance to the original cost of utility plant investment,
the resulting cash flows are inadequate to provide for replacement of that
investment in future years or preserve the purchasing power of common equity
capital previously invested.

Foward-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 and collections of
future CTC revenues 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--The 1997 Act," and in Notes 1 and 3
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," and "Changes in the

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<PAGE>

Electric Utility Industry--Response to Regulatory Changes," (3) 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, Amortization of Regulatory
Assets and Liabilities and Decommissioning," (4) statements regarding cleanup
costs associated with MGPs and other remediation sites in Note 21 of Notes to
Financial Statements, (5) statements regarding the estimated fair value of
forward energy contracts in "Management's Discussion and Analysis of Financial
Condition and Results of Operations," subcaption "Liquidity and Capital
Resources-- UTILITY OPERATIONS--Market Risks," (6) statements regarding the
use of fossil plant sale proceeds in "Management's Discussion and Analysis of
Financial Condition and Results of Operations," subcaptions "Changes in the
Electric Utility Industry--Fossil Plant Sale," "Liquidity and Capital
Resources--UTILITY OPERATIONS--Construction Program," and in Note 4 of Notes
to Financial Statements, (7) statements regarding estimates of claims
resulting from the summer of 1999 outages set forth in Note 21 of Notes to
Financial Statements, (8) statements regarding ComEd's transfer of nuclear
assets, including the decommissioning trust funds, in Notes 1 and 2 of Notes
to Financial Statements and in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" subcaption "Changes in the
Electric Utility Industry--Merger Agreement" and (9) statements regarding the
withdrawal of ComEd's facilities from the MISO and ComEd's responsibility for
start-up costs associated with the MISO under the transmission owners'
agreement. 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 and collections of future CTC revenues are subject to unforeseen
developments in the market for electricity in Illinois resulting from
regulatory changes. The statements regarding estimated capital expenditures,
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 fair value of forward energy contracts are subject to changes in
generating capability and reduction in the demand for electricity. The
statement regarding the use of proceeds from the fossil plant sale is subject
to the possibility that regulatory action might affect the amount and use of
such proceeds and the possibility that, due to changing market conditions,
ComEd may determine that other uses of the proceeds may be in their best
interest. The statements regarding estimates of claims resulting from the
summer of 1999 outages are subject to the risk that the actual amount of
losses suffered by customers and restoration costs may exceed the estimated
amounts. The statements regarding ComEd's transfer of nuclear assets,
including the decommissioning trust funds, are subject to the risk of
unsatisfactory resolution of significant regulatory and tax issues. The
statements regarding the timing of withdrawal of ComEd's facilities from the
MISO and ComEd's responsibility for start-up costs associated with the MISO
are subject to resolution of legal issues raised, and expected to be raised,
by the MISO. 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.

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<PAGE>

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

On June 12, 2000, the NRC issued to ComEd an Order imposing a civil penalty
of $110,000 for a violation of NRC employee protection regulations at Zion
Station in 1997. On August 11, 2000, ComEd notified the NRC that it would not
request a hearing, although it did not agree that a violation had occurred,
and paid the civil penalty.

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. With respect to Cotter, in 1994 a federal jury returned nominal
dollar verdicts on eight plaintiffs' claims in the 1989 cases, which verdicts
were upheld on appeal. The remaining claims in the 1989 actions have been
settled and dismissed. On July 15, 1998, a jury verdict was rendered in Dodge
v. Cotter (United States District Court for the District of Colorado, Civil
Action No. 91-Z-1861), a case relating to 14 of the plaintiffs in the 1991
cases. The verdict against Cotter and in favor of the plaintiffs, after an
amended judgement was issued March 11, 1999, totaled approximately $6 million,
including compensatory and punitive damages, interest and medical monitoring.
Cotter appealed. On February 11, 2000, the Tenth Circuit Court of Appeals
agreed with Cotter, found that the trial judge had erred in critical rulings
and reversed the jury verdict, remanding the case for new trial. A trial
involving the next group of twelve plaintiffs is currently underway in federal
district court in Denver. Although this trial and the other 1991 cases will
necessarily involve the resolution of numerous contested issues of law and
fact, it is the Company's assessment that these actions will not have a
material impact on its financial position or operations.

In August of 1999, three class action lawsuits were filed against the
Company related to a series of service interruptions. The two primary events
occurred on July 30 through August 2, 1999. Another significant outage
occurred on August 12, 1999. The outages of July 30, 1999, described as the
Northwest Substation events, began during a period of intense heat and
humidity. On August 12, 1999, in what is described as the Jefferson Substation
event, ComEd interrupted service to customers on the near north and near west
side of the Loop. While major commercial customers were affected, all service
was restored in this event on the same date. The combined effect of these
events resulted in over 168,000 customers losing service for more than 4
hours. The class action complaints have been consolidated and seek to recover
damages for personal injuries and property damage, as well as economic loss
for these events. Further, ComEd initiated expedited claim settlements for
those with primarily food spoilage claims and has paid over $4 million to
date. Conditional class certification has been approved by the Court for the
sole purpose of exploring settlement talks. For purposes of such discussions,
the outages described above, as well as lesser events through August 31, 1999,
will be considered. If talks are not productive, either side can withdraw
unilaterally. The Company has repeatedly declared that it will pay no economic
damages and will vigorously defend against such claims. The lawsuits are
pending in the Circuit Court of Cook County. ComEd filed a motion challenging
the legal sufficiency of the consolidated complaints. On July 21, 2000, the
judge dismissed two of the counts with prejudice, and four others with leave
to replead. The plaintiffs filed an amended complaint on August 29, 2000.
ComEd has again filed a motion seeking dismissal of the pleadings. The
plaintiffs have not yet responded. The next status before the Court is set for
November 10, 2000. Argument on the motion to dismiss will likely occur in
December 2000. A portion of any settlement or verdict may be covered by
insurance and discussions with the carrier are ongoing. ComEd's management
believes adequate reserves have been established in connection with these
cases.

Following the summer 1999 service interruptions, the ICC opened a three-
phase investigation of the design and reliability of ComEd's transmission and
distribution system. At the conclusion of each

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<PAGE>

phase of the investigation, the ICC will issue reports that will include
specific recommendations for ComEd and a timetable for executing the
recommendations. Although the recommendations are not legally binding on
ComEd, the ICC may enforce the recommendations through litigation. The report
on Phase I of the investigation was released the week of January 3, 2000,
which focused on the outages of July and August 1999. The first and second of
five reports on Phase II and Phase III, focusing on the transmission and
distribution system, were released during the weeks of June 5 and June 17,
respectively. The third report is anticipated later this year. The
investigation is expected to conclude by early 2001. Since summer 1999, the
Company has devoted significant resources to improving the reliability of its
transmission and distribution system. As a result of the application of these
resources and discussions with the ICC, the Company believes that the
likelihood of a successful material claim by the ICC resulting from this
investigation is remote. The investigation is expected to conclude by early
2001.

In 1996, several developers of non-utility generating facilities filed
litigation against various Illinois officials claiming that the enforcement
against those facilities of an amendment to Illinois law removing the
entitlement of those facilities to state-subsidized payments for electricity
sold to ComEd after March 15, 1996 violated their rights under the federal and
state constitutions, and against ComEd for a declaratory order that their
rights under their contracts with ComEd were not affected by the amendment. On
August 4, 1999, the Illinois Appellate Court held that the developers' claims
against the State were premature, and the Illinois Supreme Court denied leave
to appeal that ruling by Order dated December 1, 1999. On April 14, 2000, the
developer of one such facility requested leave to amend its complaint to
allege claims for damages against ComEd based on breach by ComEd of an alleged
contractual obligation to pay for electricity purchased from that developer at
the state-subsidized rate. ComEd has objected to the developer's request for
leave to amend, and intends vigorously to contest any assertion by such
developer that it is entitled to any payment in excess of ComEd's avoided
costs.

CERCLA provides for immediate response and removal actions coordinated by
the U.S. EPA to releases of hazardous substances into the environment and
authorizes the U.S. Government either to clean up sites at which hazardous
substances have created actual or potential environmental hazards or to order
persons responsible for the situation to do so. Under CERCLA, generators and
transporters of hazardous substances, as well as past and present owners and
operators of hazardous waste sites, are made strictly, jointly and severally
liable for the cleanup costs of waste at sites, most of which are listed by
the U.S. EPA on the NPL. These responsible parties can be ordered to perform a
cleanup, can be sued for costs associated with a U.S. EPA directed cleanup,
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. See Note 21 of
Notes to Financial Statements for information regarding costs associated with
investigating and remediating former MGP sites.

From time to time, ComEd 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. ComEd does 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 ComEd's Annual Reports on Form 10-K
for the year ended December 31, 1999 or in this Quarterly Report on Form 10-Q
for the quarterly period ended September 30, 2000, which could have such an
effect.

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<PAGE>

Item 6. Exhibits and Reports on Form 8-K.

(a) Exhibits

<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------- ------------------------------------------------------------------
<C> <S>
(12) Statement computing Commonwealth Edison Company ratios of earnings
to fixed charges and ratios of earnings to fixed charges and
preferred and preference stock dividend requirements.
(23)-1 Consent of independent public accountants applicable to
Commonwealth Edison Company.
(27)-1 Financial data schedule of Commonwealth Edison Company.
</TABLE>

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<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, each
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized on the 7th day of November 2000. The
signature for the undersigned company shall be deemed to relate only to
matters having reference to such company and its subsidiaries thereof.

Commonwealth Edison Company
Registrant

By James C. Horsch
_____________________________________
James C. Horsch
(Vice President)

By Ruth Ann M. Gillis
_____________________________________
Ruth Ann M. Gillis
(Principal Financial Officer)