What is the nature of Exelon's involvement with Sithe Energies?

Exelon Generation Company, LLC, now indirectly owns a 50% interest in Sithe Energies, Inc. This stake was acquired through a series of transactions completed on November 25, 2003, with Reservoir Capital Group also holding the other 50% indirect interest. This structure is subject to put and call options that could lead to one party owning 100% of Sithe.

What are the financial implications of the Sithe transactions for Exelon?

Following the completion of the Sithe transactions, Sithe distributed $580 million of available cash to Exelon Generation. While Exelon's intent is to divest its interest in Sithe by the end of 2004, the put and call options have varying exercise timelines extending through March 2006.

What is the synthetic fuel investment, and why is Exelon pursuing it?

Exelon has invested in two synthetic fuel-producing facilities that convert coal into fuel for power plants. The company is seeking tax credits under Section 29 of the Internal Revenue Code for this production, which applies to fuels produced from non-conventional sources through December 31, 2007. The IRS has resumed issuing PLRs for synthetic fuel production facilities, and Exelon anticipates receiving them.

What are the expected financial benefits and impacts of the synthetic fuel investment?

The synthetic fuel investment is projected to provide over $200 million in net cash flow to Exelon from 2004 through 2008, with expected annual cash flows ranging from $25 million to $40 million, peaking at $80 million in 2007. The net income impact is expected to be averaged between $50 and $55 million annually from 2004-2008. The investment is also expected to reduce Exelon's effective tax rate by approximately 6.7% in 2004. Exelon's pro forma operating earnings guidance excludes earnings related to this investment.

EXC 8-K SEC Disclosure

Summary

Exelon Corporation's 8-K filing on December 3, 2003, details two significant transactions. The company, through its subsidiary Exelon Generation Company, LLC, has completed a series of transactions to acquire a 50% interest in Sithe Energies, Inc. (Sithe), with Reservoir Capital Group also holding a 50% interest. This complex series of acquisitions and divestitures involved multiple parties and resulted in Exelon Generation receiving a substantial cash distribution from Sithe. Additionally, Exelon has invested in two synthetic fuel-producing facilities, aiming to benefit from tax credits under Section 29 of the Internal Revenue Code. The company has filed for Private Letter Rulings (PLRs) with the IRS and expects significant cash benefits over the investment's life, beginning in 2003 and extending through 2007. This investment is not expected to materially impact 2003 results but is projected to generate over $200 million in net cash flow from 2004 through 2008, with a notable peak in 2007.

Key Highlights

1Exelon Generation acquired a 50% indirect interest in Sithe Energies, Inc. (Sithe) on November 25, 2003.
2Reservoir Capital Group also acquired a 50% indirect interest in Sithe, creating a joint ownership structure.
3Sithe distributed $580 million in cash to Exelon Generation following the transactions.
4Exelon invested in two synthetic fuel-producing facilities.
5The synthetic fuel investment is expected to yield over $200 million in cash benefits from 2003-2007.
6Exelon has filed for Private Letter Rulings (PLRs) with the IRS to secure tax credits under Section 29 of the Internal Revenue Code for synthetic fuel production.
7The synthetic fuel investment is anticipated to reduce Exelon's effective tax rate in 2004.

EXELON CORP 8-K Report (Dec 3, 2003)

Summary

Key Highlights

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