XNYS:EXC Exelon Corp Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

XNYS:EXC (Exelon Corp): Fair Value Estimate
Premium
XNYS:EXC (Exelon Corp): Consider Buying
Premium
XNYS:EXC (Exelon Corp): Consider Selling
Premium
XNYS:EXC (Exelon Corp): Fair Value Uncertainty
Premium
XNYS:EXC (Exelon Corp): Economic Moat
Premium
XNYS:EXC (Exelon Corp): Stewardship
Premium
 
Table of Contents

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

 

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2012

or

 

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

 

Commission
File Number

  

Name of Registrant; State of Incorporation;

Address of Principal Executive Offices; and

Telephone Number

   IRS Employer
Identification
Number
 

1-16169

  

EXELON CORPORATION

     23-2990190   
  

(a Pennsylvania corporation)

10 South Dearborn Street

P.O. Box 805379

Chicago, Illinois 60680-5379

(312) 394-7398

  

333-85496

  

EXELON GENERATION COMPANY, LLC

     23-3064219   
  

(a Pennsylvania limited liability company)

300 Exelon Way

Kennett Square, Pennsylvania 19348-2473

(610) 765-5959

  

1-1839

  

COMMONWEALTH EDISON COMPANY

     36-0938600   
  

(an Illinois corporation)

440 South LaSalle Street

Chicago, Illinois 60605-1028

(312) 394-4321

  

000-16844

  

PECO ENERGY COMPANY

     23-0970240   
  

(a Pennsylvania corporation)

P.O. Box 8699

2301 Market Street

Philadelphia, Pennsylvania 19101-8699

(215) 841-4000

  

1-1910

  

BALTIMORE GAS AND ELECTRIC COMPANY

     52-0280210   
  

(a Maryland corporation)

2 Center Plaza

110 West Fayette Street

Baltimore, MD 21201-3708

(410) 234-5000

  

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ    No  ¨.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  þ    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

     Large Accelerated Filer      Accelerated Filer    Non-accelerated Filer      Smaller
Reporting
Company

Exelon Corporation

   þ              

Exelon Generation Company, LLC

         þ        

Commonwealth Edison Company

         þ        

PECO Energy Company

         þ        

Baltimore Gas and Electric Company

         þ        

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  þ.

The number of shares outstanding of each registrant’s common stock as of March 31, 2012 was:

 

Exelon Corporation Common Stock, without par value

   852,410,272

Exelon Generation Company, LLC

   not applicable

Commonwealth Edison Company Common Stock, $12.50 par value

   127,016,584

PECO Energy Company Common Stock, without par value

   170,478,507

Baltimore Gas and Electric Company Common Stock, without par value

   1,000

 

 

 


Table of Contents

TABLE OF CONTENTS

 

    Page No.  
FILING FORMAT     6   
FORWARD-LOOKING STATEMENTS     6   
WHERE TO FIND MORE INFORMATION     6   
PART I.  

FINANCIAL INFORMATION

    7   
ITEM 1.  

FINANCIAL STATEMENTS

    7   
 

Exelon Corporation

    8   
 

Consolidated Statements of Operations and Comprehensive Income

    8   
 

Consolidated Statements of Cash Flows

    9   
 

Consolidated Balance Sheets

    10   
 

Consolidated Statement of Changes in Shareholders’ Equity

    12   
 

Exelon Generation Company, LLC

    13   
 

Consolidated Statements of Operations and Comprehensive Income

    13   
 

Consolidated Statements of Cash Flows

    14   
 

Consolidated Balance Sheets

    15   
 

Consolidated Statement of Changes in Equity

    17   
 

Commonwealth Edison Company

    18   
 

Consolidated Statements of Operations and Comprehensive Income

    18   
 

Consolidated Statements of Cash Flows

    19   
 

Consolidated Balance Sheets

    20   
 

Consolidated Statement of Changes in Shareholders’ Equity

    22   
 

PECO Energy Company

    23   
 

Consolidated Statements of Operations and Comprehensive Income

    23   
 

Consolidated Statements of Cash Flows

    24   
 

Consolidated Balance Sheets

    25   
 

Consolidated Statement of Changes in Shareholders’ Equity

    27   
 

Baltimore Gas and Electric Company

    28   
 

Consolidated Statements of Operations and Comprehensive Income

    28   
 

Consolidated Statements of Cash Flows

    29   
 

Consolidated Balance Sheets

    30   
 

Consolidated Statement of Changes in Shareholders’ Equity

    32   
 

Combined Notes to Consolidated Financial Statements

    33   
 

1. Basis of Presentation

    33   
 

2. New Accounting Pronouncements

    36   
 

3. Merger and Acquisitions

    36   
 

4. Regulatory Matters

    43   
 

5. Investment in Constellation Energy Nuclear Group, LLC

    51   
 

6. Fair Value of Financial Assets and Liabilities

    52   

 

1


Table of Contents
    Page No.  
 

7. Derivative Financial Instruments

    72   
 

8. Debt and Credit Agreements

    88   
 

9. Income Taxes

    91   
 

10. Nuclear Decommissioning

    94   
 

11. Retirement Benefits

    96   
 

12. Plant Retirements

    99   
 

13. Stock-Based Compensation Plans

    100   
 

14. Earnings Per Share and Equity

    103   
 

15. Commitments and Contingencies

    104   
 

16. Supplemental Financial Information

    119   
 

17. Segment Information

    123   
ITEM 2.  

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

    128   
 

Exelon Corporation

    128   
 

General

    128   
 

Executive Overview

    129   
 

Critical Accounting Policies and Estimates

    142   
 

Results of Operations

    143   
 

Liquidity and Capital Resources

    164   
 

Contractual Obligations and Off-Balance Sheet Arrangements

    176   
ITEM 3.  

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    177   
ITEM 4.  

CONTROLS AND PROCEDURES

    185   
PART II.  

OTHER INFORMATION

    187   
ITEM 1.  

LEGAL PROCEEDINGS

    187   
ITEM 1A.  

RISK FACTORS

    187   
ITEM 4.  

MINE SAFETY DISCLOSURES

    188   
ITEM 6.  

EXHIBITS

    189   
SIGNATURES     192   
 

Exelon Corporation

    192   
 

Exelon Generation Company, LLC

    192   
 

Commonwealth Edison Company

    192   
 

PECO Energy Company

    193   
 

Baltimore Gas and Electric Company

    193   
CERTIFICATION EXHIBITS     194   
 

Exelon Corporation

    194, 204   
 

Exelon Generation Company, LLC

    196, 206   
 

Commonwealth Edison Company

    198, 208   
 

PECO Energy Company

    200, 210  
 

Baltimore Gas and Electric Company

    202, 212   

 

2


Table of Contents
GLOSSARY OF TERMS AND ABBREVIATIONS

Exelon Corporation and Related Entities

Exelon

   Exelon Corporation

Generation

   Exelon Generation Company, LLC

ComEd

   Commonwealth Edison Company

PECO

   PECO Energy Company

BGE

   Baltimore Gas and Electric Company

BSC

   Exelon Business Services Company, LLC

Exelon Corporate

   Exelon’s holding company

CENG

   Constellation Energy Nuclear Group, LLC

Constellation

   Constellation Energy Group, Inc.

Exelon Transmission Company

   Exelon Transmission Company, LLC

Exelon Wind

   Exelon Wind, LLC and Exelon Generation Acquisitions Company, LLC

Enterprises

   Exelon Enterprises Company, LLC

Ventures

   Exelon Ventures Company, LLC

AmerGen

   AmerGen Energy Company, LLC

BondCo

   RSB BondCo LLC

PECO Trust III

   PECO Capital Trust III

PECO Trust IV

   PECO Energy Capital Trust IV

Registrants

   Exelon, Generation, ComEd, PECO and BGE, collectively

Other Terms and Abbreviations

Note “    ” of the Exelon 2011 Form 10-K

   Reference to specific Combined Note to Consolidated Financial Statements within Exelon’s 2011 Annual Report on Form 10-K

Act 11

   Pennsylvania Act 11 of 2012

AEC

   Alternative Energy Credit that is issued for each megawatt hour of generation from a qualified alternative energy source

AESO

   Alberta Electric Systems Operator

AFUDC

   Allowance for Funds Used During Construction

ALJ

   Administrative Law Judge

AMI

   Advanced Metering Infrastructure

ARC

   Asset Retirement Cost

ARO

   Asset Retirement Obligation

ARP

   Title IV Acid Rain Program

ARRA of 2009

   American Recovery and Reinvestment Act of 2009

Block contracts

   Forward Purchase Energy Block Contracts

CAIR

   Clean Air Interstate Rule

CAMR

   Federal Clean Air Mercury Rule

CERCLA

   Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended

Clean Air Act

   Clean Air Act of 1963, as amended

Clean Water Act

   Federal Water Pollution Control Amendments of 1972, as amended

Competition Act

   Pennsylvania Electricity Generation Customer Choice and Competition Act of 1996

CSAPR

   Cross-State Air Pollution Rule

CTC

   Competitive Transition Charge

DOE

   United States Department of Energy

DOJ

   United States Department of Justice

DSP

   Default Service Provider

EDF

   Electricite de France SA

EE&C

   Energy Efficiency and Conservation/Demand Response

EGS

   Electric Generation Supplier

EIMA

   Illinois Senate Bill 1652 and Illinois House Bill 3036

EPA

   United States Environmental Protection Agency

 

3


Table of Contents
GLOSSARY OF TERMS AND ABBREVIATIONS

Exelon Corporation and Related Entities

Other Terms and Abbreviations

ERCOT

   Electric Reliability Council of Texas

ERISA

   Employee Retirement Income Security Act of 1974, as amended

EROA

   Expected Rate of Return on Assets

FASB

   Financial Accounting Standards Board

FERC

   Federal Energy Regulatory Commission

FRCC

   Florida Reliability Coordinating Council

GAAP

   Generally Accepted Accounting Principles in the United States

GHG

   Greenhouse Gas

GRT

   Gross Receipts Tax

GSA

   Generation Supply Adjustment

GWh

   Gigawatt hour

HAP

   Hazardous air pollutants

Health Care Reform Acts

   Patient Protection and Affordable Care Act and Health Care and Education Reconciliation Act of 2010

ICC

   Illinois Commerce Commission

ICE

   Intercontinental Exchange

Illinois Act

   Illinois Electric Service Customer Choice and Rate Relief Law of 1997

Illinois EPA

   Illinois Environmental Protection Agency

Illinois Settlement Legislation

   Legislation enacted in 2007 affecting electric utilities in Illinois

IPA

   Illinois Power Agency

IRC

   Internal Revenue Code

IRS

   Internal Revenue Service

ISO

   Independent System Operator

ISO-NE

   ISO New England Inc.

kV

   Kilovolt

kW

   Kilowatt

kWh

   Kilowatt-hour

LIBOR

   London Interbank Offered Rate

LILO

   Lease-In, Lease-Out

LLRW

   Low-Level Radioactive Waste

LTIP

   Long-Term Incentive Plan

MATS

   U.S. EPA Mercury and Air Toxics Rule

MDPSC

   Maryland Public Service Commission

MGP

   Manufactured Gas Plant

MISO

   Midwest Independent Transmission System Operator, Inc.

mmcf

   Million Cubic Feet

Moody’s

   Moody’s Investor Service

MRV

   Market-Related Value

MW

   Megawatt

MWh

   Megawatt hour

n.m.

   not meaningful

NAAQS

   National Ambient Air Quality Standards

NAV

   Net Asset Value

NDT

   Nuclear Decommissioning Trust

NEIL

   Nuclear Electric Insurance Limited

NERC

   North American Electric Reliability Corporation

NJDEP

   New Jersey Department of Environmental Protection

Non-Regulatory Agreements Units

   Nuclear generating units or portions thereof whose decommissioning-related activities are not subject to contractual elimination under regulatory accounting

NOV

   Notice of Violation

 

4


Table of Contents
GLOSSARY OF TERMS AND ABBREVIATIONS

Exelon Corporation and Related Entities

Other Terms and Abbreviations

NPDES

   National Pollutant Discharge Elimination System

NRC

   Nuclear Regulatory Commission

NYMEX

   New York Mercantile Exchange

OCI

   Other Comprehensive Income

OIESO

   Ontario Independent Electricity System Operator

OPEB

   Other Postretirement Employee Benefits

PA DEP

   Pennsylvania Department of Environmental Protection

PAPUC

   Pennsylvania Public Utility Commission

PCCA

   Pennsylvania Climate Change Act

PGC

   Purchased Gas Cost Clause

PJM

   PJM Interconnection, LLC

POLR

   Provider of Last Resort

POR

   Purchase of Receivables

PPA

   Power Purchase Agreement

Price-Anderson Act

   Price-Anderson Nuclear Industries Indemnity Act of 1957

PRP

   Potentially Responsible Parties

PSEG

   Public Service Enterprise Group Incorporated

PV

   Photovoltaic

RCRA

   Resource Conservation and Recovery Act of 1976, as amended

REC

   Renewable Energy Credit which is issued for each megawatt hour of generation from a qualified renewable energy source

Regulatory Agreement Units

   Nuclear generating units whose decommissioning-related activities are subject to contractual elimination under regulatory accounting

RES

   Retail Electric Suppliers

RFP

   Request for Proposal

Rider

   Reconcilable Surcharge Recovery Mechanism

RMC

   Risk Management Committee

RPM

   PJM Reliability Pricing Model

RPS

   Renewable Energy Portfolio Standards

RTEP

   Regional Transmission Expansion Plan

RTO

   Regional Transmission Organization

S&P

   Standard & Poor’s Ratings Services

SEC

   United States Securities and Exchange Commission

SERC

   SERC Reliability Corporation (Formerly Southeast Electric Reliability Council)

SERP

   Supplemental Employee Retirement Plan

SFC

   Supplier Forward Contract

SGIG

   Smart Grid Investment Grant

SILO

   Sale-In, Lease-Out

SMP

   Smart Meter Program

SNF

   Spent Nuclear Fuel

SOS

   Standard Offer Service

SPP

   Southwest Power Pool

SSCM

   Simplified Service Cost Method

Tax Relief Act of 2010

   Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010

TEG

   Termoelectrica del Golfo

TEP

   Termoelectrica Penoles

Upstream

   Natural gas exploration and production activities

VIE

   Variable Interest Entity

WECC

   Western Electric Coordinating Council

 

5


Table of Contents

FILING FORMAT

This combined Form 10-Q is being filed separately by the Registrants. Information contained herein relating to any individual registrant is filed by such registrant on its own behalf. No registrant makes any representation as to information relating to any other registrant.

FORWARD-LOOKING STATEMENTS

Certain of the matters discussed in this Report are forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that are subject to risks and uncertainties. The factors that could cause actual results to differ materially from the forward-looking statements made by a Registrant include (a) those factors discussed in the following sections of Exelon’s 2011 Annual Report on Form 10-K: ITEM 1A. Risk Factors, as updated by Part II, ITEM 1A of this Report; ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, as updated by Part I, ITEM 2. of this Report; and ITEM 8. Financial Statements and Supplementary Data: Note 18, as updated by Part I, Item 1. Financial Statements, Note 15 of this Report; (b) those factors discussed in the following sections of the Constellation Energy Group, Inc.’s 2011 Annual Report on Form 10-K: ITEM 1A. Risk Factors, as updated by Part II, ITEM 1A of this Report; ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, as updated by Part I, ITEM 2. of this Report; and ITEM 8. Financial Statements and Supplementary Data: Note 12, as updated by Part I, ITEM 1. Financial Statements, Note 15 of this Report; and (c) other factors discussed herein and in other filings with the SEC by the Registrants. Readers are cautioned not to place undue reliance on these forward-looking statements, which apply only as of the date of this Report. None of the Registrants undertakes any obligation to publicly release any revision to its forward-looking statements to reflect events or circumstances after the date of this Report.

WHERE TO FIND MORE INFORMATION

The public may read and copy any reports or other information that the Registrants file with the SEC at the SEC’s public reference room at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. These documents are also available to the public from commercial document retrieval services, the website maintained by the SEC at www.sec.gov and the Registrants’ websites at www.exeloncorp.com. Information contained on the Registrants’ websites shall not be deemed incorporated into, or to be a part of, this Report.

 

6


Table of Contents

 

PART I. FINANCIAL INFORMATION

Item 1.    Financial Statements

 

 

 

7


Table of Contents

EXELON CORPORATION AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Unaudited)

 

     Three Months Ended
March 31,
 
(In millions, except per share data)            2012                     2011          

Operating revenues

   $ 4,686     $ 4,956  

Operating expenses

    

Purchased power and fuel

     1,765       2,001  

Operating and maintenance

     1,964       1,223  

Depreciation and amortization

     382       327  

Taxes other than income

     194       203  
  

 

 

   

 

 

 

Total operating expenses

     4,305       3,754  
  

 

 

   

 

 

 

Equity in loss of unconsolidated affiliates

     (22       

Operating income

     359       1,202  
  

 

 

   

 

 

 

Other income and deductions

    

Interest expense

     (189     (175

Interest expense to affiliates, net

     (6     (6

Other, net

     194       94  
  

 

 

   

 

 

 

Total other income and deductions

     (1     (87
  

 

 

   

 

 

 

Income before income taxes

     358       1,115  

Income taxes

     158       446  
  

 

 

   

 

 

 

Net income

     200       669  

Net loss attributable to noncontrolling interests, preferred security dividends and preference stock dividends

            1  
  

 

 

   

 

 

 

Net income on common stock

     200       668  
  

 

 

   

 

 

 

Other comprehensive income (loss), net of income taxes

    

Pension and non-pension postretirement benefit plans:

    

Prior service cost (benefit) reclassified to periodic benefit cost

     1       (1

Actuarial loss reclassified to periodic cost

     41       33  

Transition obligation reclassified to periodic cost

     1       1  

Pension and non-pension postretirement benefit plans valuation adjustment

     (8     39  

Change in unrealized gain (loss) on cash flow hedges

     215       (46

Change in unrealized gain on marketable securities

     1         
  

 

 

   

 

 

 

Other comprehensive income

     251       26  
  

 

 

   

 

 

 

Comprehensive income

   $ 451     $ 694  
  

 

 

   

 

 

 

Weighted average shares of common stock outstanding:

    

Basic

     705       662  
  

 

 

   

 

 

 

Diluted

     707       664  
  

 

 

   

 

 

 

Earnings per average common share — basic:

   $ 0.28     $ 1.01  
  

 

 

   

 

 

 

Earnings per average common share — diluted:

   $ 0.28     $ 1.01  
  

 

 

   

 

 

 

Dividends per common share

   $ 0.53     $ 0.53  
  

 

 

   

 

 

 

See the Combined Notes to Consolidated Financial Statements

 

8


Table of Contents

EXELON CORPORATION AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

     Three Months Ended
March 31,
 
(In millions)    2012     2011  

Cash flows from operating activities

    

Net income

   $ 200     $ 669  

Adjustments to reconcile net income to net cash flows provided by (used in) operating activities:

    

Depreciation, amortization, accretion and depletion including nuclear fuel and energy contract amortization

     776       552  

Deferred income taxes and amortization of investment tax credits

     101       340  

Net fair value changes related to derivatives

     (73     148  

Net realized and unrealized gains on nuclear decommissioning trust fund investments

     (103     (40

Other non-cash operating activities

     530       223  

Changes in assets and liabilities:

    

Accounts receivable

     394       53  

Inventories

     104       78  

Accounts payable, accrued expenses and other current liabilities

     (1,176     (526

Option premiums (paid) received, net

     (100     19  

Counterparty collateral received (posted), net

     340       (150

Income taxes

     178       733  

Pension and non-pension postretirement benefit contributions

     (55     (2,088

Other assets and liabilities

     (122     (218
  

 

 

   

 

 

 

Net cash flows provided by (used in) operating activities

     994       (207
  

 

 

   

 

 

 

Cash flows from investing activities

    

Capital expenditures

     (1,496     (1,150

Proceeds from nuclear decommissioning trust fund sales

     3,680       1,195  

Investment in nuclear decommissioning trust funds

     (3,726     (1,247

Cash acquired from Constellation

     964         

Proceeds from sales of investments

     10       1  

Purchases of investments

     (5     (1

Change in restricted cash

     (8     8  

Other investing activities

     (59     15  
  

 

 

   

 

 

 

Net cash flows used in investing activities

     (640     (1,179
  

 

 

   

 

 

 

Cash flows from financing activities

    

Changes in short-term debt

     141       50  

Issuance of long-term debt

            599  

Retirement of long-term debt

     (451     (1

Dividends paid on common stock

     (350     (348

Proceeds from employee stock plans

     12       8  

Other financing activities

     (1     (47
  

 

 

   

 

 

 

Net cash flows (used in) provided by financing activities

     (649     261  
  

 

 

   

 

 

 

Decrease in cash and cash equivalents

     (295     (1,125

Cash and cash equivalents at beginning of period

     1,016       1,612  
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 721     $ 487  
  

 

 

   

 

 

 

See the Combined Notes to Consolidated Financial Statements

 

9


Table of Contents

EXELON CORPORATION AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEETS

 

(In millions)    March 31,
2012
     December 31,
2011
 
     (Unaudited)         

ASSETS

     

Current assets

     

Cash and cash equivalents

   $ 721      $ 1,016  

Restricted cash and investments

     43        40  

Restricted cash and investments of variable interest entities

     67          

Accounts receivable, net

     

Customer ($348 and $329 gross accounts receivable pledged as collateral as of March 31, 2012 and December 31, 2011, respectively)

     2,868        1,613  

Other

     1,339        1,000  

Accounts receivable, net, variable interest entities

     241          

Mark-to-market derivative assets

     1,491        432  

Unamortized energy contracts assets

     1,699        13  

Inventories, net

     

Fossil fuel

     202        208  

Materials and supplies

     740        656  

Regulatory assets

     846        390  

Other

     1,558        345  
  

 

 

    

 

 

 

Total current assets

     11,815        5,713  
  

 

 

    

 

 

 

Property, plant and equipment, net

     42,105        32,570  

Deferred debits and other assets

     

Regulatory assets

     6,168        4,518  

Nuclear decommissioning trust funds

     6,927        6,507  

Investments

     827        751  

Investments in affiliates

     362        15  

Investment in CENG

     2,046          

Goodwill

     2,625        2,625  

Mark-to-market derivative assets

     1,389        650  

Unamortized energy contracts assets

     1,530        388  

Pledged assets for Zion Station decommissioning

     708        734  

Other

     1,126        524  
  

 

 

    

 

 

 

Total deferred debits and other assets

     23,708        16,712  
  

 

 

    

 

 

 

Total assets

   $ 77,628      $ 54,995  
  

 

 

    

 

 

 

See the Combined Notes to Consolidated Financial Statements

 

10


Table of Contents

EXELON CORPORATION AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEETS

 

(In millions)    March 31,
2012
    December 31,
2011
 
     (Unaudited)        
LIABILITIES AND SHAREHOLDERS’ EQUITY     

Current liabilities

    

Short-term borrowings

   $ 339     $ 163  

Short-term notes payable — accounts receivable agreement

     225       225  

Long-term debt due within one year

     670       828  

Long-term debt of variable interest entities due within one year

     65         

Accounts payable

     2,125       1,444  

Accounts payable of variable interest entities

     138         

Accrued expenses

     1,492       1,255  

Deferred income taxes

     517       1  

Regulatory liabilities

     335       197  

Dividends payable

     472       349  

Mark-to-market derivative liabilities

     1,105       112  

Unamortized energy contract liabilities

     707         

Other

     862       560  
  

 

 

   

 

 

 

Total current liabilities

     9,052       5,134  
  

 

 

   

 

 

 

Long-term debt

     16,293       11,799  

Long-term debt to financing trusts

     648       390  

Long-term debt of variable interest entity

     517         

Deferred credits and other liabilities

    

Deferred income taxes and unamortized investment tax credits

     10,705       8,253  

Asset retirement obligations

     4,064       3,884  

Pension obligations

     2,553       2,194  

Non-pension postretirement benefit obligations

     2,688       2,263  

Spent nuclear fuel obligation

     1,019       1,019  

Regulatory liabilities

     4,050       3,627  

Mark-to-market derivative liabilities

     671       126  

Unamortized energy contract liabilities

     897         

Payable for Zion Station decommissioning

     574       563  

Other

     1,708       1,268  
  

 

 

   

 

 

 

Total deferred credits and other liabilities

     28,929       23,197  
  

 

 

   

 

 

 

Total liabilities

     55,439       40,520  
  

 

 

   

 

 

 

Commitments and contingencies

    

Preferred securities of subsidiary

     87       87  

Shareholders’ equity

    

Common stock (No par value, 2,000 shares authorized, 852 shares and 663 shares outstanding at March 31, 2012 and December 31, 2011, respectively)

     16,512       9,107  

Treasury stock, at cost (35 shares at March 31, 2012 and December 31, 2011, respectively)

     (2,327     (2,327

Retained earnings

     9,830       10,055  

Accumulated other comprehensive loss, net

     (2,199     (2,450
  

 

 

   

 

 

 

Total shareholders’ equity

     21,816       14,385  

BGE preference stock not subject to mandatory redemption

     193         

Noncontrolling interest

     93       3  
  

 

 

   

 

 

 

Total equity

     22,102       14,388  
  

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 77,628     $ 54,995  
  

 

 

   

 

 

 

See the Combined Notes to Consolidated Financial Statements

 

11


Table of Contents

EXELON CORPORATION AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

 

(In millions, shares
in thousands)
  Issued
Shares
    Common
Stock
    Treasury
Stock
    Retained
Earnings
    Accumulated
Other
Comprehensive
Loss, net
    Non-controlling
Interest
    BGE
preference
stock not
subject to
mandatory
redemption
    Total
Equity
 

Balance, December 31, 2011

    698,112     $ 9,107     $ (2,327   $ 10,055     $ (2,450   $ 3     $      $ 14,388  

Net income

                         202               (2            200  

Long-term incentive plan activity

    917       40                                          40  

Common stock dividends

                         (425                          (425

Common stock issuance — Constellation merger

    188,124       7,365                                          7,365  

Acquisition of Constellation

                                       92        193       285  

Preferred and preference stock dividends

                         (2                          (2

Other comprehensive income net of income taxes of $(228)

                                251                     251  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, March 31, 2012

    887,153     $ 16,512     $ (2,327   $ 9,830     $ (2,199   $ 93     $ 193     $ 22,102  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

See the Combined Notes to Consolidated Financial Statements

 

12


Table of Contents

EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Unaudited)

 

     Three Months Ended
March 31,
 
(In millions)        2012             2011      

Operating revenues

    

Operating revenues

   $ 2,373     $ 2,337  

Operating revenues from affiliates

     366       306  
  

 

 

   

 

 

 

Total operating revenues

     2,739       2,643  
  

 

 

   

 

 

 

Operating expenses

    

Purchased power and fuel

     1,044       883  

Operating and maintenance

     1,039       680  

Operating and maintenance from affiliates

     136       74  

Depreciation and amortization

     153       139  

Taxes other than income

     73       66  
  

 

 

   

 

 

 

Total operating expenses

     2,445       1,842  
  

 

 

   

 

 

 

Equity in loss of unconsolidated affiliates

     (22       

Operating income

     272       801  
  

 

 

   

 

 

 

Other income and deductions

    

Interest expense

     (54     (45

Other, net

     178       75  
  

 

 

   

 

 

 

Total other income and deductions

     124       30  
  

 

 

   

 

 

 

Income before income taxes

     396       831  

Income taxes

     230       336  
  

 

 

   

 

 

 

Net income

     166       495  

Net loss attributable to noncontrolling interests

     (2       
  

 

 

   

 

 

 

Net income on membership interest

     168       495  
  

 

 

   

 

 

 

Other comprehensive income (loss), net of income taxes

    

Change in unrealized gain (loss) on cash flow hedges

     252       (70
  

 

 

   

 

 

 

Other comprehensive income (loss)

     252       (70
  

 

 

   

 

 

 

Comprehensive income

   $ 420     $ 425  
  

 

 

   

 

 

 

See the Combined Notes to Consolidated Financial Statements

 

13


Table of Contents

EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

     Three Months Ended
March 31,
 
(In millions)        2012             2011      

Cash flows from operating activities

    

Net income

   $ 166     $ 495  

Adjustments to reconcile net income to net cash flows provided by operating activities:

    

Depreciation, amortization, depletion and accretion, including nuclear fuel and energy contract amortization

     547        364  

Deferred income taxes and amortization of investment tax credits

     165       180  

Net fair value changes related to derivatives

     (63     148  

Net realized and unrealized gains on nuclear decommissioning trust fund investments

     (103     (40

Other non-cash operating activities

     90        72  

Changes in assets and liabilities:

    

Accounts receivable

     321       (151

Receivables from and payables to affiliates, net

     85       238  

Inventories

     59       26  

Accounts payable, accrued expenses and other current liabilities

     (782     17  

Option premiums (paid) received, net

     (100     19  

Counterparty collateral received (paid), net

     348       (206

Income taxes

     162       388  

Pension and non-pension postretirement benefit contributions

     (20     (952

Other assets and liabilities

     (80     (20
  

 

 

   

 

 

 

Net cash flows provided by operating activities

     795        578  
  

 

 

   

 

 

 

Cash flows from investing activities

    

Capital expenditures

     (1,055     (772

Proceeds from nuclear decommissioning trust fund sales

     3,680       1,195  

Investment in nuclear decommissioning trust funds

     (3,726     (1,247

Change in restricted cash

     (1       

Cash acquired from Constellation

     708         

Other investing activities

     (77     1  
  

 

 

   

 

 

 

Net cash flows used in investing activities

     (471     (823
  

 

 

   

 

 

 

Cash flows from financing activities

    

Retirement of long-term debt

     (1     (1

Distribution to member

     (600       

Other financing activities

            (37
  

 

 

   

 

 

 

Net cash flows used in financing activities

     (601     (38
  

 

 

   

 

 

 

Decrease in cash and cash equivalents

     (277     (283

Cash and cash equivalents at beginning of period

     496       456  
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 219     $ 173  
  

 

 

   

 

 

 

See the Combined Notes to Consolidated Financial Statements

 

14


Table of Contents

EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEETS

 

(In millions)    March 31,
2012
     December 31,
2011
 
     (Unaudited)         

ASSETS

     

Current assets

     

Cash and cash equivalents

   $ 219      $ 496  

Restricted cash and cash equivalents

     3        5  

Restricted cash and cash equivalents, variable interest entities

     18          

Accounts receivable, net

     

Customer

     1,520        578  

Other

     404        257  

Accounts receivable, net, variable interest entities

     241          

Mark-to-market derivative assets

     1,491        432  

Mark-to-market derivative assets with affiliates

     590        503  

Receivables from affiliates

     142        109  

Unamortized energy contract assets

     1,699        13  

Inventories, net

     

Fossil fuel

     132        120  

Materials and supplies

     602        556  

Other

     1,180        148  
  

 

 

    

 

 

 

Total current assets

     8,241        3,217  
  

 

 

    

 

 

 

Property, plant and equipment, net

     17,480        13,475  

Deferred debits and other assets

     

Nuclear decommissioning trust funds

     6,927        6,507  

Investments

     70        41  

Investments in affiliates

     340        1  

Investment in CENG

     2,046          

Mark-to-market derivative assets

     1,375        635  

Mark-to-market derivative assets with affiliates

     92        191  

Prepaid pension asset

     2,098        2,068  

Pledged assets for Zion Station decommissioning

     708        734  

Unamortized energy contract assets

     1,530        388  

Other

     816        176  
  

 

 

    

 

 

 

Total deferred debits and other assets

     16,002        10,741  
  

 

 

    

 

 

 

Total assets

   $ 41,723      $ 27,433  
  

 

 

    

 

 

 

See the Combined Notes to Consolidated Financial Statements

 

15


Table of Contents

EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEETS

 

(In millions)    March 31,
2012
     December 31,
2011
 
     (Unaudited)         

LIABILITIES AND EQUITY

     

Current liabilities

     

Short-term borrowings

   $ 114      $ 2  

Long-term debt due within one year

     72        3  

Accounts payable

     1,229        753  

Accounts payable of variable interest entities

     138          

Accrued expenses

     894        779  

Payables to affiliates

     183        58  

Deferred income taxes

     758        244  

Mark-to-market derivative liabilities

     1,090        103  

Unamortized energy contract liabilities

     590          

Other

     360        202  
  

 

 

    

 

 

 

Total current liabilities

     5,428        2,144  
  

 

 

    

 

 

 

Long-term debt

     6,388        3,674  

Long-term debt of variable interest entities

     186          

Deferred credits and other liabilities

     

Deferred income taxes and unamortized investment tax credits

     4,899        3,966  

Asset retirement obligations

     3,939        3,767  

Non-pension postretirement benefit obligations

     778        703  

Spent nuclear fuel obligation

     1,019        1,019  

Payables to affiliates

     2,430        2,222  

Mark-to-market derivative liabilities

     546        29  

Unamortized energy contract liabilities

     808          

Payable for Zion Station decommissioning

     574        563  

Other

     839        638  
  

 

 

    

 

 

 

Total deferred credits and other liabilities

     15,832        12,907  
  

 

 

    

 

 

 

Total liabilities

     27,834        18,725  
  

 

 

    

 

 

 

Commitments and contingencies

     

Equity

     

Member’s equity

     

Membership interest

     8,828        3,556  

Undistributed earnings

     3,800        4,232  

Accumulated other comprehensive income, net

     1,167        915  
  

 

 

    

 

 

 

Total member’s equity

     13,795        8,703  

Noncontrolling interest

     94        5  
  

 

 

    

 

 

 

Total equity

     13,889        8,708  
  

 

 

    

 

 

 

Total liabilities and equity

   $ 41,723      $ 27,433  
  

 

 

    

 

 

 

See the Combined Notes to Consolidated Financial Statements

 

16


Table of Contents

EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(Unaudited)

 

     Member’s Equity               
(In millions)    Membership
Interest
     Undistributed
Earnings
    Accumulated
Other
Comprehensive
Income, net
     Noncontrolling
Interest
    Total
Equity
 

Balance, December 31, 2011

   $ 3,556      $ 4,232     $ 915      $ 5     $ 8,708  

Net income

             168               (2     166   

Acquisition of Constellation

     5,272                       91        5,363  

Distribution to member

             (600                    (600

Other comprehensive income, net of income taxes of $(166)

                    252               252  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Balance, March 31, 2012

   $ 8,828      $ 3,800     $ 1,167      $ 94     $ 13,889  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

 

See the Combined Notes to Consolidated Financial Statements

 

17


Table of Contents

COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Unaudited)

 

     Three Months Ended
March 31,
 
(In millions)        2012             2011      

Operating revenues

    

Operating revenues

   $ 1,387     $ 1,465  

Operating revenues from affiliates

     1       1  
  

 

 

   

 

 

 

Total operating revenues

     1,388       1,466  
  

 

 

   

 

 

 

Operating expenses

    

Purchased power

     373       626  

Purchased power from affiliate

     247       163  

Operating and maintenance

     276       229  

Operating and maintenance from affiliate

     42       37  

Depreciation and amortization

     149       134  

Taxes other than income

     75       77  
  

 

 

   

 

 

 

Total operating expenses

     1,162       1,266  
  

 

 

   

 

 

 

Operating income

     226       200  
  

 

 

   

 

 

 

Other income and deductions

    

Interest expense

     (79     (82

Interest expense to affiliates, net

     (3     (3

Other, net

     4       4  
  

 

 

   

 

 

 

Total other income and deductions

     (78     (81
  

 

 

   

 

 

 

Income before income taxes

     148       119  

Income taxes

     61       50  
  

 

 

   

 

 

 

Net income

     87       69  

Other comprehensive income, net of income taxes

    

Change in unrealized gain on marketable securities

     1         
  

 

 

   

 

 

 

Other comprehensive income

     1         

Comprehensive income

   $ 88     $ 69  
  

 

 

   

 

 

 

See the Combined Notes to Consolidated Financial Statements

 

18


Table of Contents

COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

      Three Months Ended
March 31,
 
(In millions)        2012             2011      

Cash flows from operating activities

    

Net income

   $ 87     $ 69  

Adjustments to reconcile net income to net cash flows provided by operating activities:

    

Depreciation, amortization and accretion

     149       134  

Deferred income taxes and amortization of investment tax credits

     57       81  

Other non-cash operating activities

     60       82  

Changes in assets and liabilities:

    

Accounts receivable

     58       21  

Receivables from and payables to affiliates, net

     15       (22

Inventories

     (3     (4

Accounts payable, accrued expenses and other current liabilities

     (159     (153

Counterparty collateral (paid) received, net

     (8     56  

Income taxes

     116       288  

Pension and non-pension postretirement benefit contributions

     (9     (871

Other assets and liabilities

     (72     (35
  

 

 

   

 

 

 

Net cash flows provided by (used in) operating activities

     291       (354
  

 

 

   

 

 

 

Cash flows from investing activities

    

Capital expenditures

     (291     (251

Proceeds from sales of investments

     10       1  

Purchases of investments

     (5     (1

Other investing activities

     6       10  
  

 

 

   

 

 

 

Net cash flows used in investing activities

     (280     (241
  

 

 

   

 

 

 

Cash flows from financing activities

    

Changes in short-term debt

     302       50  

Issuance of long-term debt

            599  

Retirement of long-term debt

     (450       

Dividends paid on common stock

     (75     (75

Other financing activities

     (3     (2
  

 

 

   

 

 

 

Net cash flows (used in) provided by financing activities

     (226     572  
  

 

 

   

 

 

 

Decrease in cash and cash equivalents

     (215     (23

Cash and cash equivalents at beginning of period

     234       50  
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 19     $ 27  
  

 

 

   

 

 

 

See the Combined Notes to Consolidated Financial Statements

 

19


Table of Contents

COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEETS

 

(In millions)    March 31,
2012
     December 31,
2011
 
     (Unaudited)         
ASSETS      

Current assets

     

Cash and cash equivalents

   $ 19      $ 234  

Restricted cash

     3        3  

Accounts receivable, net

     

Customer

     596        655  

Other

     272        385  

Inventories, net

     84        81  

Deferred income taxes

     62        61  

Counterparty collateral deposited

     98        90  

Regulatory assets

     793        657  

Other

     21        22  
  

 

 

    

 

 

 

Total current assets

     1,948        2,188  
  

 

 

    

 

 

 
     

Property, plant and equipment, net

     13,267        13,121  

Deferred debits and other assets

     

Regulatory assets

     644        699  

Investments

     16        21  

Investments in affiliates

     6        6  

Goodwill

     2,625        2,625  

Receivables from affiliates

     2,020        1,860  

Prepaid pension asset

     1,772        1,803  

Other

     291        315  
  

 

 

    

 

 

 

Total deferred debits and other assets

     7,374        7,329  
  

 

 

    

 

 

 

Total assets

   $ 22,589      $ 22,638  
  

 

 

    

 

 

 

See the Combined Notes to Consolidated Financial Statements

 

20


Table of Contents

COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEETS

 

(In millions)    March 31,
2012
     December 31,
2011
 
     (Unaudited)         

LIABILITIES AND SHAREHOLDERS’ EQUITY

     

Current liabilities

     

Short-term borrowings

   $ 302      $   

Long-term debt due within one year

             450  

Accounts payable

     277        325  

Accrued expenses

     204        318  

Payables to affiliates

     125        111  

Customer deposits

     138        136  

Regulatory liabilities

     127        137  

Mark-to-market derivative liability

     16        9  

Mark-to-market derivative liability with affiliate

     590        503  

Other

     69        82  
  

 

 

    

 

 

 

Total current liabilities

     1,848        2,071  
  

 

 

    

 

 

 

Long-term debt

     5,215        5,215  

Long-term debt to financing trust

     206        206  

Deferred credits and other liabilities

     

Deferred income taxes and unamortized investment tax credits

     4,042        3,993  

Asset retirement obligations

     90        89  

Non-pension postretirement benefits obligations

     301        271  

Regulatory liabilities

     3,208        3,042  

Mark-to-market derivative liability

     125        97  

Mark-to-market derivative liability with affiliate

     92        191  

Other

     403        426  
  

 

 

    

 

 

 

Total deferred credits and other liabilities

     8,261        8,109  
  

 

 

    

 

 

 

Total liabilities

     15,530        15,601  
  

 

 

    

 

 

 

Commitments and contingencies

     

Shareholders’ equity

     

Common stock

     1,588        1,588  

Other paid-in capital

     5,012        5,003  

Retained earnings

     459        447  

Accumulated other comprehensive loss, net

             (1
  

 

 

    

 

 

 

Total shareholders’ equity

     7,059        7,037  
  

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 22,589      $ 22,638  
  

 

 

    

 

 

 

See the Combined Notes to Consolidated Financial Statements

 

21


Table of Contents

COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

 

(In millions)   Common
Stock
    Other  Paid-In
Capital
    Retained Deficit
Unappropriated
    Retained
Earnings
Appropriated
    Accumulated
Other
Comprehensive
Loss, net
    Total
Shareholders’
Equity
 

Balance, December 31, 2011

  $ 1,588     $ 5,003     $ (1,639   $ 2,086     $ (1   $ 7,037  

Net income

                  87                     87  

Appropriation of retained earnings for future dividends

                  (87     87                

Common stock dividends

                         (75            (75

Allocation of tax benefit from parent

           9                            9  

Other comprehensive income, net of income taxes of $0

                                1       1  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, March 31, 2012

  $ 1,588     $ 5,012     $ (1,639   $ 2,098     $      $ 7,059  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

See the Combined Notes to Consolidated Financial Statements

 

22


Table of Contents

PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Unaudited)

 

     Three Months Ended
March 31,
 
(In millions)        2012             2011      

Operating revenues

    

Operating revenues

   $ 874     $ 1,152  

Operating revenues from affiliates

     1       1  
  

 

 

   

 

 

 

Total operating revenues

     875       1,153  
  

 

 

   

 

 

 

Operating expenses

    

Purchased power and fuel

     300       492  

Purchased power from affiliate

     111       141  

Operating and maintenance

     173       184  

Operating and maintenance from affiliates

     30       22  

Depreciation and amortization

     53       48  

Taxes other than income

     31       56  
  

 

 

   

 

 

 

Total operating expenses

     698       943  
  

 

 

   

 

 

 

Operating income

     177       210  
  

 

 

   

 

 

 

Other income and deductions

    

Interest expense

     (28     (31

Interest expense to affiliates, net

     (3     (3

Other, net

     2       6  
  

 

 

   

 

 

 

Total other income and deductions

     (29     (28
  

 

 

   

 

 

 

Income before income taxes

     148       182  

Income taxes

     51       56  
  

 

 

   

 

 

 

Net income

     97       126  

Preferred security dividends

     1       1  
  

 

 

   

 

 

 

Net income on common stock

   $ 96     $ 125  
  

 

 

   

 

 

 

Comprehensive income, net of income taxes

    

Net income

   $ 97     $ 126  

Other comprehensive income, net of income taxes

    

Change in unrealized gain on marketable securities

     1         
  

 

 

   

 

 

 

Other comprehensive income

     1         
  

 

 

   

 

 

 

Comprehensive income

   $ 98     $ 126  
  

 

 

   

 

 

 

See the Combined Notes to Consolidated Financial Statements

 

23


Table of Contents

PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

     Three Months Ended
March 31,
 
(In millions)        2012             2011      

Cash flows from operating activities

    

Net income

   $ 97     $ 126  

Adjustments to reconcile net income to net cash flows provided by operating activities:

    

Depreciation, amortization and accretion

     53       48  

Deferred income taxes and amortization of investment tax credits

     10       56  

Other non-cash operating activities

     40       35  

Changes in assets and liabilities:

    

Accounts receivable

     31       188  

Receivables from and payables to affiliates, net

     12       (227

Inventories

     39       55  

Accounts payable, accrued expenses and other current liabilities

     (71     (26

Income taxes

     76       33  

Pension and non-pension postretirement benefit contributions

     (5     (110

Other assets and liabilities

     (110     (162
  

 

 

   

 

 

 

Net cash flows provided by operating activities

     172       16  
  

 

 

   

 

 

 

Cash flows from investing activities

    

Capital expenditures

     (96     (121

Changes in Exelon intercompany money pool

     (35     (59

Change in restricted cash

     (3     (2

Other investing activities

     4       10  
  

 

 

   

 

 

 

Net cash flows used in investing activities

     (130     (172
  

 

 

   

 

 

 

Cash flows from financing activities

    

Dividends paid on common stock

     (87     (111

Dividends paid on preferred securities

     (1     (1

Other financing activities

            (5
  

 

 

   

 

 

 

Net cash flows used in financing activities

     (88     (117
  

 

 

   

 

 

 

Decrease in cash and cash equivalents

     (46     (273

Cash and cash equivalents at beginning of period

     194       522  
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 148     $ 249  
  

 

 

   

 

 

 

See the Combined Notes to Consolidated Financial Statements

 

24


Table of Contents

PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEETS

 

(In millions)    March 31,
2012
     December 31,
2011
 
     (Unaudited)         
ASSETS      

Current assets

     

Cash and cash equivalents

   $ 148      $ 194  

Restricted cash and cash equivalents

     5        2  

Accounts receivable, net

     

Customer ($348 and $329 gross accounts receivable pledged as collateral as of March 31, 2012 and December 31, 2011, respectively)

     333        380  

Other

     293        376  

Inventories, net

     

Fossil fuel

     46        87  

Materials and supplies

     20        18  

Deferred income taxes

     28        25  

Receivable from Exelon intercompany money pool

     117        82  

Prepaid utility taxes

     130        1  

Regulatory assets

     48        39  

Other

     43        39  
  

 

 

    

 

 

 

Total current assets

     1,211        1,243  
  

 

 

    

 

 

 

Property, plant and equipment, net

     5,924        5,874  

Deferred debits and other assets

     

Regulatory assets

     1,217        1,216  

Investments

     23        22  

Investments in affiliates

     8        8  

Receivable from affiliates

     413        365  

Prepaid pension asset

     381        382  

Other

     38        46  
  

 

 

    

 

 

 

Total deferred debits and other assets

     2,080        2,039  
  

 

 

    

 

 

 

Total assets

   $ 9,215      $ 9,156  
  

 

 

    

 

 

 

 

See the Combined Notes to Consolidated Financial Statements

 

25


Table of Contents

PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEETS

 

(In millions)    March 31,
2012
     December 31,
2011
 
     (Unaudited)         
LIABILITIES AND SHAREHOLDERS’ EQUITY      

Current liabilities

     

Short-term notes payable — accounts receivable agreement

   $ 225      $ 225  

Long-term debt due within one year

     375        375  

Accounts payable

     213        262  

Accrued expenses

     78        83  

Payables to affiliates

     75        62  

Customer deposits

     52        53  

Regulatory liabilities

     73        60  

Other

     22        25  
  

 

 

    

 

 

 

Total current liabilities

     1,113        1,145  
  

 

 

    

 

 

 

Long-term debt

     1,597        1,597  

Long-term debt to financing trusts

     184        184  

Deferred credits and other liabilities

     

Deferred income taxes and unamortized investment tax credits

     2,193        2,170  

Asset retirement obligations

     28        28  

Non-pension postretirement benefits obligations

     295        288  

Regulatory liabilities

     637        585  

Other

     133        134  
  

 

 

    

 

 

 

Total deferred credits and other liabilities

     3,286        3,205  
  

 

 

    

 

 

 

Total liabilities

     6,180        6,131  
  

 

 

    

 

 

 

Commitments and contingencies

     

Preferred securities

     87        87  

Shareholders’ equity

     

Common stock

     2,379        2,379  

Retained earnings

     568        559  

Accumulated other comprehensive income, net

     1          
  

 

 

    

 

 

 

Total shareholders’ equity

     2,948        2,938  
  

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 9,215      $ 9,156  
  

 

 

    

 

 

 

See the Combined Notes to Consolidated Financial Statements

 

26


Table of Contents

PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

 

(In millions)    Common
Stock
     Retained
Earnings
    Accumulated
Other
Comprehensive
Income, net
     Total
Shareholders’
Equity
 

Balance, December 31, 2011

   $ 2,379      $ 559     $       $ 2,938  

Net income

             97               97  

Common stock dividends

             (87             (87

Preferred security dividends

             (1             (1

Other comprehensive income, net of income taxes of $0

                    1        1  
  

 

 

    

 

 

   

 

 

    

 

 

 

Balance, March 31, 2012

   $ 2,379      $ 568     $ 1      $ 2,948  
  

 

 

    

 

 

   

 

 

    

 

 

 

See the Combined Notes to Consolidated Financial Statements

 

27


Table of Contents

BALTIMORE GAS AND ELECTRIC COMPANY AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Unaudited)

 

     Three Months Ended
March 31,
 
(In millions)        2012             2011      

Operating revenues

    

Operating revenues

   $ 693     $ 975  

Operating revenues from affiliates

     3       1  
  

 

 

   

 

 

 

Total operating revenues

     696       976  
  

 

 

   

 

 

 

Operating expenses

    

Purchased power and fuel

     293       487  

Purchased power from affiliate

     92       57  

Operating and maintenance

     153       120  

Operating and maintenance from affiliates

     42       32  

Depreciation and amortization

     79       77  

Taxes other than income

     48       50  
  

 

 

   

 

 

 

Total operating expenses

     707       823  
  

 

 

   

 

 

 

Operating (loss) income

     (11     153  
  

 

 

   

 

 

 

Other income and deductions

    

Interest expense

     (41     (33

Other, net

     6       8  
  

 

 

   

 

 

 

Total other income and deductions

     (35     (25
  

 

 

   

 

 

 

(Loss) income before income taxes

     (46     128  

Income taxes

     (16     47  
  

 

 

   

 

 

 

Net (loss) income

     (30     81  

Preference stock dividends

     3       3  
  

 

 

   

 

 

 

Net (loss) income on common stock

   $ (33   $ 78  
  

 

 

   

 

 

 

Comprehensive (loss) income

   $ (30   $ 81  
  

 

 

   

 

 

 

See the Combined Notes to Consolidated Financial Statements

 

28


Table of Contents

BALTIMORE GAS AND ELECTRIC COMPANY AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

     Three Months Ended
March 31,
 
(In millions)        2012             2011      

Cash flows from operating activities

    

Net (loss) income

   $ (30   $ 81  

Adjustments to reconcile net income to net cash flows provided by operating activities:

    

Depreciation, amortization and accretion

     79       77  

Deferred income taxes and amortization of investment tax credits

     40       29  

Other non-cash operating activities

     178       16  

Changes in assets and liabilities:

    

Accounts receivable

     (9     27  

Receivables from and payables to affiliates, net

     56       (1

Inventories

     50       41  

Accounts payable, accrued expenses and other current liabilities

     (60     3  

Income taxes

     (57     56  

Pension and non-pension postretirement benefit contributions

     (7     (5

Other assets and liabilities

     12       26  
  

 

 

   

 

 

 

Net cash flows provided by operating activities

     252       350  
  

 

 

   

 

 

 

Cash flows from investing activities

    

Capital expenditures

     (115     (136

Change in restricted cash

     (19     (23

Other investing activities

     (6       
  

 

 

   

 

 

 

Net cash flows used in investing activities

     (140     (159
  

 

 

   

 

 

 

Cash flows from financing activities

    

Dividends paid on common stock

            (85

Dividends paid on preference stock

     (3     (3

Other financing activities

     (1     (3
  

 

 

   

 

 

 

Net cash flows used in financing activities

     (4     (91
  

 

 

   

 

 

 

Increase in cash and cash equivalents

     108       100  

Cash and cash equivalents at beginning of period

     49       50  
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 157     $ 150  
  

 

 

   

 

 

 

See the Combined Notes to Consolidated Financial Statements

 

29


Table of Contents

BALTIMORE GAS AND ELECTRIC COMPANY AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEETS

 

(In millions)    March 31,
2012
     December 31,
2011
 
     (Unaudited)         
ASSETS      

Current assets

     

Cash and cash equivalents

   $ 157      $ 49  

Restricted cash and cash equivalents of variable interest entity

     49        30  

Accounts receivable, net

     

Customer

     419        428  

Other

     95        90  

Income taxes receivable

     77        21  

Inventories, net

     

Gas held in storage

     24        74  

Materials and supplies

     34        34  

Prepaid utility taxes

     27        56  

Regulatory assets

     174        174  

Other

     10        12  
  

 

 

    

 

 

 

Total current assets

     1,066        968  
  

 

 

    

 

 

 

Property, plant and equipment, net

     5,211        5,132  

Deferred debits and other assets

     

Regulatory assets

     553        550  

Investments in affiliates

     8        8  

Prepaid pension asset

     504        514  

Other

     27        33  
  

 

 

    

 

 

 

Total deferred debits and other assets

     1,092        1,105  
  

 

 

    

 

 

 

Total assets

   $ 7,369      $ 7,205  
  

 

 

    

 

 

 

 

See the Combined Notes to Consolidated Financial Statements

 

30


Table of Contents

BALTIMORE GAS AND ELECTRIC COMPANY AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEETS

 

(In millions)    March 31,
2012
     December 31,
2011
 
     (Unaudited)         
LIABILITIES AND SHAREHOLDERS’ EQUITY      

Current liabilities

     

Long-term debt due within one year

   $ 110      $ 110  

Long-term debt of variable interest entity due within one year

     63        63  

Accounts payable

     167        210  

Accrued expenses

     113        148  

Deferred income taxes

     23        59  

Payables to affiliates

     102        41  

Customer deposits

     82        84  

Regulatory liabilities

     22        18  

Residential customer rate credit regulatory liability

     113          

Other

     45        25  
  

 

 

    

 

 

 

Total current liabilities

     840        758  
  

 

 

    

 

 

 

Long-term debt

     1,596        1,596  

Long-term debt to financing trust

     258        258  

Long-term debt of variable interest entity

     332        332  

Deferred credits and other liabilities

     

Deferred income taxes and unamortized investment tax credits

     1,569        1,491  

Asset retirement obligations

     8        1  

Non-pension postretirement benefits obligations

     211        212  

Regulatory liabilities

     205        200  

Other

     82        56  
  

 

 

    

 

 

 

Total deferred credits and other liabilities

     2,075        1,960  
  

 

 

    

 

 

 

Total liabilities

     5,101        4,904  
  

 

 

    

 

 

 

Commitments and contingencies

     

Shareholders’ equity

     

Common stock

     1,294        1,294  

Retained earnings

     784        817  
  

 

 

    

 

 

 

Total shareholders’ equity

     2,078        2,111  
  

 

 

    

 

 

 

Preference stock not subject to mandatory redemption

     190        190  
  

 

 

    

 

 

 

Total equity

     2,268        2,301  
  

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 7,369      $ 7,205  
  

 

 

    

 

 

 

See the Combined Notes to Consolidated Financial Statements

 

31


Table of Contents

BALTIMORE GAS AND ELECTRIC COMPANY AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

 

(In millions)    Common
Stock
     Retained
Earnings
    Total
Shareholders’
Equity
    Preference stock
not subject to
mandatory
redemption
     Total
Equity
 

Balance, December 31, 2011

   $ 1,294      $ 817     $ 2,111      $ 190      $ 2,301  

Net loss

             (30     (30             (30

Preference stock dividends

             (3     (3             (3
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Balance, March 31, 2012

   $ 1,294      $ 784     $ 2,078      $ 190      $ 2,268  
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

See the Combined Notes to Consolidated Financial Statements

 

32


Table of Contents

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per share data, unless otherwise noted)

1.    Basis of Presentation (Exelon, Generation, ComEd, PECO and BGE)

Exelon is a utility services holding company engaged through its principal subsidiaries in the energy generation and energy distribution businesses. Prior to March 12, 2012, its principal, wholly owned subsidiaries included ComEd, PECO and Generation. On March 12, 2012, in conjunction with the Agreement and Plan of Merger (the “Merger Agreement”), Constellation merged into Exelon with Exelon continuing as the surviving corporation. As a result of the merger transaction, Generation includes Constellation’s customer supply and generation businesses. BGE, formerly Constellation’s regulated utility subsidiary, is now a subsidiary of Exelon. Refer to Note 3 — Merger and Acquisitions for further information regarding the merger transaction.

The energy generation business includes:

 

   

Generation:    The business consists of owned, contracted and investments in electric generating facilities and wholesale and retail customer supply of electric and natural gas products and services, including renewable energy products, risk management services and natural gas exploration and production activities.

The energy delivery businesses include:

 

   

ComEd:    Purchase and regulated retail sale of electricity and the provision of distribution and transmission services in northern Illinois, including the City of Chicago.

 

   

PECO:    Purchase and regulated retail sale of electricity and the provision of distribution and transmission services in southeastern Pennsylvania, including the City of Philadelphia, and the purchase and regulated retail sale of natural gas and the provision of distribution services in the Pennsylvania counties surrounding the City of Philadelphia.

 

   

BGE:    Purchase and regulated retail sale of electricity and the provision of distribution and transmission services in central Maryland, including the City of Baltimore, and the purchase and regulated retail sale of natural gas and the provision of distribution services in central Maryland, including the City of Baltimore.

For financial statement purposes, beginning on March 12, 2012, disclosures that solely relate to Constellation or BGE activities now also apply to Exelon, unless otherwise noted. When appropriate, Exelon, Generation, ComEd, PECO and BGE are named specifically for their related activities and disclosures.

BGE was acquired through a transaction under common control (RF HoldCo) and Exelon did not apply push-down accounting to BGE. As a result, BGE will continue to maintain its current reporting requirements as an SEC registrant. The information disclosed for BGE represents the activity of the standalone entity for the three months ended March 31, 2012 and 2011 and the financial position as of March 31, 2012 and December 31, 2011. However, for Exelon’s financial reporting, Exelon is reporting BGE activity from March 12, 2012 through March 31, 2012.

Each of Generation’s, ComEd’s, PECO’s and BGE’s Consolidated Financial Statements includes the accounts of its subsidiaries. All intercompany transactions have been eliminated.

The accompanying consolidated financial statements as of March 31, 2012 and 2011 and for the three months then ended are unaudited but, in the opinion of the management of each Registrant includes all adjustments that are considered necessary for a fair statement of its respective financial statements in accordance with GAAP. All adjustments are of a normal, recurring nature, except as otherwise disclosed. The December 31, 2011 Consolidated Balance Sheets were taken from audited financial statements. Certain prior year amounts in BGE’s Consolidated Statements of Cash Flows, Exelon’s, Generation’s and BGE’s Consolidated Statement of

 

33


Table of Contents

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

 

Operations and in Exelon’s, Generation’s, ComEd’s, PECO’s and BGE’s Consolidated Balance Sheets have been reclassified between line items for comparative purposes. The reclassifications did not affect the Registrants’ net income or cash flows from operating activities. These Combined Notes to Consolidated Financial Statements have been prepared pursuant to the rules and regulations of the SEC for Quarterly Reports on Form 10-Q. Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. These notes should be read in conjunction with the Notes to Consolidated Financial Statements of all Registrants included in ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA of their respective 2011 Form 10-K.

Variable Interest Entities (Exelon, Generation, ComEd, PECO and BGE)

Consolidated Variable Interest Entities

The Registrants’ consolidated VIEs consist of:

 

   

BondCo, a special purpose bankruptcy remote limited liability company formed by BGE to acquire, hold, and to issue and service bonds secured by rate stabilization property;

 

   

a retail gas group formed to enter into a collateralized gas supply agreement with a third party gas supplier;

 

   

a retail power supply company;

 

   

a group of solar project limited liability companies formed to build, own, and operate solar power facilities; and

 

   

several wind projects designed to develop, construct and operate wind generation facilities.

See Note 1 and Note 4 of the 2011 Form 10-K for Constellation and BGE for further information regarding investments in VIEs.

For each of the consolidated VIEs:

 

   

The assets of the VIEs are restricted and can only be used to settle obligations of the respective VIE. In the case of BondCo, BGE is required to remit all payments it receives from all residential customers for non-bypassable rate stabilization charges to BondCo. During the three months ended March 31, 2012 and 2011, BGE remitted $20 million and $23 million, respectively, to BondCo.

 

   

Except for providing capital funding to the solar entities for ongoing construction of the solar power facilities and a $75 million parental guarantee to the third party gas supplier in support of the retail gas group, during the three months ended March 31, 2012, neither Exelon nor BGE:

 

   

provided any additional financial support to the VIEs;

 

   

had any contractual commitments or obligations to provide financial support to the VIEs; and

 

   

the creditors of the VIEs did not have recourse to Exelon’s or BGE’s general credit.

 

34


Table of Contents

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

 

At March 31, 2012, Exelon’s, Generation’s and BGE’s consolidated financial statements include the following consolidated VIEs, which were acquired as part of the merger:

 

     March 31, 2012  
     Exelon      Generation      BGE  

Current assets

   $ 525      $ 474      $ 50  

Noncurrent assets

     410        364         
  

 

 

    

 

 

    

 

 

 

Total assets

   $ 935      $ 838      $ 50  
  

 

 

    

 

 

    

 

 

 

Current liabilities

   $ 415      $ 340      $ 74  

Noncurrent liabilities

     606        228        332  
  

 

 

    

 

 

    

 

 

 

Total liabilities

   $ 1,021      $ 568      $ 406  
  

 

 

    

 

 

    

 

 

 

Unconsolidated Variable Interest Entities

Exelon’s and Generation’s variable interests in unconsolidated VIEs generally include three categories: (1) equity method investments, (2) energy purchase and sale contracts, and (3) fuel purchase commitments. As of the balance sheet date, the carrying amount of assets and liabilities in Exelon’s and Generation’s Consolidated Balance Sheets that relate to its involvement with the majority of the energy contracts and fuel purchase contracts with VIEs are predominately related to working capital accounts and generally represent the amounts owed by Exelon and Generation for the deliveries associated with the current billing cycles under the contracts. Further, Exelon and Generation have not provided or guaranteed the debt or equity support, or liquidity arrangements, performance guarantees or other commitments associated with these contracts, so there is no significant potential exposure to loss as a result of the involvement with these VIEs.

As of March 31, 2012, Exelon and Generation did have exposure to loss associated with six VIEs for which they were not the primary beneficiary; including certain equity method investments and certain energy contracts. The following table presents summary information about the unconsolidated VIE entities for which we have exposure to loss:

 

March 31, 2012

   Energy
Contract
VIEs
     Equity
Method
Investment
VIEs
     Total  

Total assets(a)

   $ 286      $ 350      $ 636  

Total liabilities(a)

     223        113        336  

Registrants’ ownership interest(a)

             94        94  

Other ownership interests(a)

     63        143        206  

Registrants’ maximum exposure to loss:

        

Letters of credit

     14                14  

Carrying amount of our equity method investments

             76        76  

Debt and payment guarantees

             5        5  

 

(a)

These items represent amounts on the unconsolidated VIE balance sheets, not on Exelon’s or Generation’s balance sheets. These items are included to provide information regarding the relative size of the unconsolidated VIEs.

The variable interests noted above have been added as a result of the Constellation and Exelon merger. During the three months ended March 31, 2012, ComEd, PECO, BGE and legacy Generation assessed their

 

35


Table of Contents

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

 

contracts and determined there were no changes in their variable interests, primary beneficiary determinations or conclusions regarding consolidation of VIEs from December 31, 2011. See Note 1 of the Exelon 2011 Form 10-K and Note 1 and Note 4 of the 2011 10-K for BGE for further information regarding the Registrants’ VIEs.

2.    New Accounting Pronouncements (Exelon, Generation, ComEd, PECO and BGE)

The following recently issued accounting standard was adopted by the Registrants during the period.

Fair Value Measurement

In May 2011, the FASB issued authoritative guidance amending existing guidance for measuring and disclosing fair value. The new guidance does not impact the fair value measurements included in the Registrants’ consolidated financial statements as of March 31, 2012. The guidance is effective for the Registrants beginning with the period ended March 31, 2012 and is required to be applied prospectively. See Note 6 – Fair Value of Financial Assets and Liabilities for the new disclosures.

3.    Merger and Acquisitions

Merger with Constellation (Exelon, Generation and BGE)

Description of Transaction

On March 12, 2012, Exelon completed the merger contemplated by the Merger Agreement, among Exelon, Bolt Acquisition Corporation, a wholly owned subsidiary of Exelon (Merger Sub) and Constellation. As a result of that merger, Merger Sub was merged into Constellation (the Initial Merger) and Constellation became a wholly owned subsidiary of Exelon. Following the completion of the Initial Merger, Exelon and Constellation completed a series of internal corporate organizational restructuring transactions. Constellation merged with and into Exelon, with Exelon continuing as the surviving corporation (the Upstream Merger). Simultaneously with the Upstream Merger, Constellation’s interest in RF Holdco LLC, which holds Constellation’s interest in BGE, was transferred to Exelon Energy Delivery Company, LLC, a wholly owned subsidiary of Exelon that also owns Exelon’s interests in ComEd and PECO. Following the Upstream Merger and the transfer of RF Holdco LLC, Exelon contributed to Generation certain subsidiaries, including the customer supply and generation businesses that were acquired from Constellation as a result of the Initial Merger and the Upstream Merger.

Constellation’s shareholders received 0.930 shares of Exelon common stock in exchange for each share of Constellation common stock outstanding as of March 12, 2012. Generally, all outstanding Constellation equity-based compensation awards were converted into Exelon equity-based compensation awards using the same ratio. See Note 13 — Stock-Based Compensation Plans for further information.

Regulatory Matters

In December 2011, Exelon and Constellation reached a settlement with the State of Maryland and the City of Baltimore and other interested parties in connection with the regulatory proceedings related to the merger that were pending before the MDPSC. As part of this settlement and the application for approval of the merger by MDPSC, Exelon agreed to provide a package of benefits to BGE customers, the City of Baltimore and the State of Maryland, resulting in an estimated direct investment in the State of Maryland of more than $1 billion.

 

36


Table of Contents

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

 

On February 17, 2012, the MDPSC approved the merger with conditions. Many of the conditions were reflective of the settlement agreements described above. The following pre-tax costs were recognized after the closing of the merger and are included in Exelon’s, Generation’s and BGE’s Consolidated Statements of Operations and Comprehensive Income for the three months ended March 31, 2012:

 

Description

   Expected
Payment
Period
   BGE      Generation      Exelon      Statement of
Operations
Location

BGE rate credit of $100 per residential customer(a)

   Q2 2012    $ 113      $       $ 113      Revenues

Customer investment fund to invest in energy efficiency and low-income energy assistance to BGE customers

   2012 to 2014                      113.5      O&M Expense

Contribution for renewable energy, energy efficiency or related projects in Baltimore

   2012 to 2014                      2      O&M Expense

Charitable contributions at $7 million per year for 10 years

   2012 to 2021      28        35        70      O&M Expense

State funding for offshore wind development projects

   Q2 2012                      32      O&M Expense
     

 

 

    

 

 

    

 

 

    

Total

      $ 141      $ 35      $ 330.5     
     

 

 

    

 

 

    

 

 

    

 

(a)

Exelon will make a $66 million equity contribution to BGE in the second quarter of 2012 to fund the after-tax amount of the rate credit as directed in the MDPSC order approving the merger transaction.

In addition to these costs, the estimate of $1 billion of direct investment includes $95 million to $120 million for the requirement to cause construction of a headquarters building in Baltimore for Generation’s competitive energy businesses. The construction is expected to be completed in 2 to 3 years. The $1 billion estimate also includes $625 million for Exelon and Generation’s commitment to develop 285 — 300 MW of new generation in Maryland, expected to be completed over a period of 10 years. As of March 31, 2012, no amounts have been reflected in the Exelon or Generation consolidated financial statements for these expenditure commitments. Such costs, which are expected to be primarily capital in nature, will be recognized as incurred.

Pursuant to the MDPSC merger approval conditions, BGE is restricted from paying any dividend on its common shares through the end of 2014, is required to maintain specified minimum capital and O&M expenditure levels in 2012 and 2013, and is not permitted to reduce employment levels due to involuntary attrition associated with the merger integration process.

Associated with certain of the regulatory approvals required for the merger, Exelon and Constellation agreed to enter into contracts to sell three Constellation generating stations located in PJM within 150 days (unless extended by DOJ) following the merger completion and will be required to complete the divestitures within 30 days after receipt of regulatory approvals. These stations, Brandon Shores and H.A. Wagner in Anne Arundel County, Maryland, and C.P. Crane in Baltimore County, Maryland, include base-load, coal-fired generation units plus associated gas/oil units located at the same sites, and total 2,648 MW of generation capacity. In October 2011, Exelon and Constellation reached a settlement with the PJM Independent Market Monitor, who had previously raised market power concerns regarding the merger. The settlement contains a number of commitments by Exelon, including limiting the universe of potential buyers of the divested assets to entities without significant market shares in the relevant PJM markets. The settlement also includes assurances about how Generation will bid its units into the PJM markets. The proposed divestiture and the settlement with the PJM Market Monitor were filed with FERC and the MDPSC and were included in their final orders approving the merger. As of March 31, 2012, these assets are classified as held for sale assets and included in the other current assets balance on Exelon’s and Generation’s Consolidated Balance Sheets.

 

37


Table of Contents

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

 

In addition, in January 2012, Exelon and Constellation reached an agreement with EDF under which EDF withdrew its opposition to the Exelon-Constellation merger. The terms of the agreement address CENG, a joint venture between Constellation and EDF that owns and operates three nuclear facilities with five generating units in Maryland and New York. The agreement reaffirms the terms of the joint venture. The agreement did not include any exchange of monetary consideration, and Exelon does not expect the agreement will have material effect on Exelon’s and Generation’s future results of operations, financial position and cash flows.

Exelon was named in suits filed in the Circuit Court of Baltimore City, Maryland alleging that individual directors of Constellation breached their fiduciary duties by entering into the proposed merger transaction and Exelon aided and abetted the individual directors’ breaches. Similar suits were also filed in the United States District Court for the District of Maryland. The suits sought to enjoin a Constellation shareholder vote on the proposed merger until all material information was disclosed and sought rescission of the proposed merger. During the third quarter of 2011, the parties to the suits reached an agreement in principle to settle the suits through additional disclosures to Constellation shareholders. During the first quarter of 2012, preliminary approval was obtained for the settlement with final approval of this agreement being set for June 20, 2012.

Accounting for the Merger Transaction

The total consideration in the merger was based on the opening price of a share of Exelon common stock on March 12, 2012 (in millions):

 

     Number of Shares/
Awards Issued
     Total
Estimated
Fair Value
 

Issuance of Exelon common stock to Constellation shareholders and equity award holders at the exchange ratio of 0.930 shares for each share of Constellation common stock; based on the opening price of Exelon common stock on March 12, 2012 of $38.91(a)

     187.45      $ 7,294  

Issuance of Exelon equity awards to replace existing Constellation equity awards(b)

     11.30        71  
     

 

 

 

Total purchase price

      $ 7,365  
     

 

 

 

 

(a)

The number of shares issued excludes 0.7 million shares of stock that are held in a custodian account specifically for the settlement of unvested share-based restricted stock awards. The related share value is excluded from the estimated fair value as these awards have not vested and therefore are not in the purchase price.

(b)

Includes vested Constellation stock options and restricted stock units converted at fair value to Exelon awards on March 12, 2012. The fair value of the stock options was determined using the Black-Sholes model.

All options to purchase Constellation common stock under various equity agreements were converted into options to acquire a number of shares of Exelon common stock (as adjusted for the exchange ratio) at an option price. All Constellation unvested restricted stock awards granted prior to April 28, 2011, that were outstanding as of immediately prior to the consummation of the Merger, became vested on a pro rata basis (determined based upon the number of months from the start of the applicable restricted period to the closing of the Initial Merger) and converted into Exelon common stock at the exchange ratio in accordance with the applicable stock plan and award agreement terms. All Constellation restricted stock awards that remained unvested on a pro rata basis pursuant to the foregoing formula, and any Constellation unvested restricted stock awards granted after April 28, 2011, have been assumed by Exelon and automatically converted into shares of unvested restricted stock of Exelon at the exchange ratio. Likewise, all restricted stock units granted prior to April 28, 2011 under the Constellation Plans and outstanding immediately prior to the completion of the Initial Merger became vested on a pro rata basis (determined based upon the number of months from the start of the applicable restricted period to

 

38


Table of Contents

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

 

the closing of the Initial Merger) and have been assumed by Exelon and automatically converted into a number of shares of Exelon common stock at the exchange ratio.

The fair value of Constellation’s assets acquired and liabilities assumed was determined based on significant estimates and assumptions that are judgmental in nature, including projected future cash flows (including timing); discount rates reflecting risk inherent in the future cash flows; and future market prices. There were also judgments made to determine the expected useful lives assigned to each class of assets acquired and duration of liabilities assumed.

The initial accounting for the merger with Constellation is not complete because the valuations necessary to assess the fair values of certain assets acquired and liabilities assumed are considered preliminary as a result of the short time period between the closing of the merger and the end of the first quarter of 2012. The allocation of the purchase price may be modified up to one year from the date of the merger, as more information is obtained about the fair value of assets acquired and liabilities assumed; however, Exelon expects to finalize these amounts by the end of 2012, if not sooner. The significant assets and liabilities for which preliminary valuation amounts are recognized at March 31, 2012 include the fair value of the acquired power supply contracts and fuel procurement contracts, unregulated property, plant and equipment, investments in affiliates, other investments, pension and OPEB plans, contingencies and uncertain tax positions, intangible assets and liabilities, long-term debt and accumulated deferred income tax liabilities. The preliminary amounts recognized are subject to revision until the valuations are completed and to the extent that additional information is obtained about the facts and circumstances that existed as of the acquisition date. Any changes to the fair value assessments may affect the purchase price allocation and material changes could require the financial statements to be retroactively amended.

The preliminary purchase price allocation of the Initial Merger of Exelon with Constellation and Exelon’s contribution of certain subsidiaries of Constellation to Generation was as follows:

 

Preliminary Purchase Price Allocation

   Exelon      Generation  

Current assets

   $ 4,944       $ 3,649   

Property, plant and equipment

     9,295        3,993  

Unamortized energy contracts

     3,624        3,624  

Other intangibles, trade name and retail relationships

     456        456  

Investment in affiliates

     2,067        2,067  

Pension and OPEB regulatory asset

     740          

Other assets

     2,612         1,210   
  

 

 

    

 

 

 

Total assets

     23,738        14,999  
  

 

 

    

 

 

 

Current liabilities

     3,480         2,866   

Unamortized energy contracts

     2,268        2,062   

Long-term debt, including current maturities

     5,632        2,972  

Noncontrolling interest

     85        85   

Deferred credits and other liabilities and preferred securities

     4,908         1,742   
  

 

 

    

 

 

 

Total liabilities, preferred securities and noncontrolling interest

     16,373        9,727  
  

 

 

    

 

 

 

Total purchase price

   $ 7,365      $ 5,272  
  

 

 

    

 

 

 

 

39


Table of Contents

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

 

Intangible Assets Recorded

For the power supply and fuel contracts acquired from Constellation, the difference between the contract price and the market price at the date of the merger was recognized as either an intangible asset or liability based on whether the fuel contracts were in or out-of-the-money. The valuation of the acquired intangible assets/liabilities was estimated by applying either the market approach or the income approach depending on the nature of the underlying contract. The market approach was utilized when prices and other relevant information generated by market transactions involving comparable transaction was available. Otherwise the income approach, which is based upon discounted projected future cash flows associated with the underlying contracts, was utilized. The measure is based upon certain unobservable inputs, which are considered Level 3 inputs, pursuant to applicable accounting guidance. Key estimates / inputs include forecasted power and fuel prices and the discount rate. The fair value amounts will be amortized over the life of the contract in relation to the present value of the underlying cash flows. Amortization expense and income will be recorded through purchased power and fuel expense or operating revenues, respectively. Exelon presents separately in its Consolidated Balance Sheets the unamortized energy contract assets and liabilities for these contracts. The weighted-average amortization period is approximately 2 years.

The fair value of the Constellation trade name intangible asset was determined based on the relief from royalty method of the income approach whereby fair value is the present value of the license fees avoided by owning the assets. The measure is based upon certain unobservable inputs, which are considered Level 3 inputs, pursuant to applicable accounting guidance. Key assumptions include the hypothetical royalty rate and the discount rate. The intangible asset will be amortized on a straight line based over an estimated 10 year useful life as amortization expense. The trade name intangible asset is included in deferred debits and other assets within Exelon’s Consolidated Balance Sheets.

The fair value of the retail relationships was determined based on a “multi-period excess method” of the income approach. Under this method, the intangible asset’s fair value is equal to the estimated future cash flows that will be earned on the current customer base, taking into account expected contract renewals based on customer attrition rates and costs to retain those customers. The measure is based upon certain unobservable inputs, which are considered Level 3 inputs, pursuant to applicable accounting guidance. Key assumptions include the customer attrition rate and the discount rate. The intangible assets will be amortized on a straight line based over the useful life of the underlying assets averaging approximately 12 years. The retail relationships intangible assets are included in deferred debits and other assets within Exelon’s Consolidated Balance Sheets.

Exelon’s intangible assets and liabilities acquired through the merger with Constellation included in its Consolidated Balance Sheets, along with the future estimated amortization, were as follows as of March 31, 2012:

 

Description

  Weighted
Average
Amortization
    Gross     Accumulated
Amortization
    Net     Estimated amortization expense  
          Remainder
of 2012
    2013     2014     2015     2016  

Unamortized energy contracts, net(a)

    1.5     $ 1,356     $ (122   $ 1,234     $ 804     $ 340     $ 52     $ 18     $ (25

Trade name

    10.0       243       (2     241       22       24       24       24       24  

Retail relationships

    11.8       213       (1     212       19        21       20       19       19  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total, net

    $ 1,812     $ (125   $ 1,687     $ 845      $ 385     $ 96     $