What are the key risks facing ComEd and Exelon due to the Illinois regulatory environment?

ComEd faces significant risk from proposed Illinois legislation that would extend the current rate freeze. If enacted, this could lead to substantial operating losses for ComEd, potentially forcing it into Chapter 11 bankruptcy. Such a bankruptcy filing would have significant adverse consequences for Exelon and Generation, including a loss in investment value and potential impacts on credit ratings and contract enforcement.

How is Exelon managing its exposure to wholesale market price volatility, especially with the expiration of contracts?

Exelon Generation hedges a significant portion of its forecasted energy supply, with hedge ratios of 94% for the remainder of 2006 and 86% for 2007. Following the expiration of its PPA with ComEd at the end of 2006, Generation will have increased exposure to market-based prices. The company plans to proactively seek hedging strategies to mitigate this increased market risk and price volatility.

What is the impact of the PSEG merger termination on Exelon's financials?

The termination of the proposed merger with PSEG resulted in a charge of approximately $55 million for the write-off of capitalized costs. This charge contributed to the increased operating and maintenance expenses and the overall decrease in net income for the period.

EXC 10-Q Quarterly Report Q3 FY2006 — Revenue, Net Income, EPS

Q: What is the primary reason for the significant decrease in net income for the third quarter of 2006?

The primary reason for the significant decrease in net income for the third quarter of 2006 was a $776 million goodwill impairment charge at ComEd, stemming from an unfavorable Illinois Commerce Commission (ICC) rate order. This charge, along with other factors like merger termination costs and increased operating expenses, led to a net loss of $44 million for the quarter.

Summary

Exelon Corporation reported a net loss of $44 million for the third quarter of 2006, a significant decline from a net income of $725 million in the same period of 2005. This downturn was primarily driven by a substantial goodwill impairment charge of $776 million related to ComEd's operations, stemming from an unfavorable Illinois Commerce Commission (ICC) rate order. The company also incurred charges related to the termination of its merger with PSEG, increased severance costs, and unfavorable weather conditions. For the first nine months of 2006, net income decreased to $1,000 million from $1,760 million in the prior year, also heavily impacted by the ComEd goodwill impairment. Despite these losses, Exelon's diversified operations showed some resilience. The Generation segment reported increased operating income due to higher wholesale market sales margins and increased nuclear output. PECO saw increased revenues from rate increases, though this was partially offset by higher operating and maintenance expenses. The company continues to fund its capital expenditures primarily through internally generated cash flows and has maintained access to credit facilities. However, the negative regulatory outcome in Illinois and the potential for a ComEd bankruptcy filing due to proposed rate freeze legislation present significant risks going forward.

Key Highlights

1Exelon reported a net loss of $44 million for Q3 2006, compared to a net income of $725 million in Q3 2005, largely due to a $776 million goodwill impairment charge at ComEd.
2The merger termination with PSEG resulted in a $55 million charge.
3ComEd's net loss widened significantly to $506 million in Q3 2006 from a net income of $224 million in Q3 2005, primarily due to the goodwill impairment.
4PECO's net income decreased to $134 million in Q3 2006 from $166 million in Q3 2005, impacted by higher operating expenses.
5Generation's net income increased to $394 million in Q3 2006 from $335 million in Q3 2005, driven by higher wholesale market margins.
6ComEd faces significant risk from proposed Illinois rate freeze legislation, potentially leading to a $1.4 billion loss and Chapter 11 bankruptcy.
7Exelon continues to meet capital requirements through internally generated cash, with $3.5 billion in operating cash flow for the first nine months of 2006.

EXELON CORP Quarterly Report for Q3 Ended Sep 30, 2006

Summary

Key Highlights

Frequently Asked Questions