10-QPeriod: Q3 FY2005

EXELON CORP Quarterly Report for Q3 Ended Sep 30, 2005

Filed October 27, 2005For Securities:EXC

Summary

Exelon Corporation reported a significant increase in earnings per share for the third quarter and the first nine months of 2005 compared to the prior year. This growth was driven by stronger wholesale market sales from its Generation segment, higher retail deliveries in Energy Delivery due to favorable weather, and unrealized gains from non-trading activities. However, these positive results were partially offset by increased purchased power and fuel expenses at Generation due to higher market prices and unplanned outages, as well as rising operating and maintenance expenses. The company is navigating a dynamic regulatory landscape, particularly in Illinois, with ongoing proceedings that could impact ComEd's future revenue and potentially lead to goodwill impairment. Exelon is also proceeding with its proposed merger with PSEG, with key regulatory approvals pending in New Jersey and Pennsylvania. The company continues to manage its capital resources effectively, primarily through internally generated cash flows, and is focused on strategic investments and asset optimization.

Key Highlights

  • 1Diluted EPS increased to $1.07 in Q3 2005 from $0.85 in Q3 2004, and to $2.60 for the nine months ended Sep 30, 2005, from $2.25 in the prior year.
  • 2Strong performance in the Generation segment, driven by higher wholesale market sales and improved margins.
  • 3Favorable weather conditions boosted retail deliveries for the Energy Delivery segment (ComEd and PECO).
  • 4The proposed merger with PSEG is progressing, with shareholder approvals obtained and state regulatory proceedings underway.
  • 5Significant regulatory uncertainty exists in Illinois concerning ComEd's rate case and procurement process, which could impact goodwill.
  • 6The company sold its investment in Sithe Energies, Inc. in January 2005, resulting in a net gain.
  • 7Capital expenditures for the nine months ended September 30, 2005, totaled $1.521 billion, with a significant portion dedicated to transmission and distribution system reliability.

Frequently Asked Questions

Exelon's earnings growth in the third quarter of 2005 was primarily driven by higher margins on the Generation segment's wholesale market sales, increased retail deliveries at ComEd and PECO due to favorable weather, unrealized mark-to-market gains from non-trading activities, and reduced severance charges. These factors were partially offset by increased purchased power expenses and operating and maintenance costs.

ComEd is facing significant regulatory developments in Illinois, including a pending rate case and a proposed competitive power procurement process. These proceedings, along with associated political uncertainty, create a challenging regulatory environment that could potentially lead to a significant impairment of goodwill for both ComEd and Exelon. Additionally, PECO has reached a partial settlement regarding its distribution and transmission rates through 2010, contingent on the approval of its merger application.

The proposed merger with PSEG has received approval from both Exelon and PSEG shareholders. Federal Energy Regulatory Commission (FERC) approval was granted in June 2005. State regulatory proceedings with the New Jersey Board of Public Utilities (NJBPU) and the Pennsylvania Public Utility Commission (PAPUC) are ongoing, with decisions expected by May 2006 and January 2006, respectively.

Exelon's financial results could be affected by several factors. Key concerns include the potential for material adverse consequences to ComEd and Exelon if the price at which ComEd is allowed to sell energy beginning in 2007 is below its procurement costs, which could impact credit ratings, access to capital markets, and potentially lead to insolvency. The company is also monitoring the impact of Hurricanes Katrina and Rita on supply costs and is assessing potential impacts from a request by the Governor of Pennsylvania regarding concessions for low-income customers.