8-KOther EventsExhibits & Filings

EXELON CORP 8-K Report, Corporate Update (Feb 21, 2006)

Filed February 21, 2006For Securities:EXC

Summary

This 8-K filing from Exelon Corp (EXC), specifically through its subsidiary ComEd, addresses a significant legislative proposal in Illinois. The Citizens Utility Board announced plans to introduce legislation that would freeze electric rates for three years, starting in 2007. ComEd strongly opposes this proposed legislation, asserting it would have detrimental effects on the state, consumers, and the company's ability to provide reliable service. The company believes the proposal violates federal law and the U.S. Constitution and is prepared to challenge it in court. ComEd highlights that without owning generation facilities, it will need to purchase electricity at market prices starting in 2007. A rate freeze under these conditions could lead to substantial financial losses for ComEd, potentially ranging from $500 million to $1.4 billion annually, depending on market electricity prices. The company warns that such financial strain could lead to a credit rating downgrade, possibly to junk bond status, making financing operations and capital improvements more difficult. ComEd also suggests that these financial pressures could ultimately force the company into bankruptcy protection.

Key Highlights

  • 1ComEd is opposing proposed legislation to freeze electric rates in Illinois for three years, starting in 2007.
  • 2The company believes a rate freeze would lead to significant financial losses, estimated between $500 million and $1.4 billion annually, due to rising wholesale electricity costs.
  • 3ComEd warns that the proposed rate freeze could result in a credit rating downgrade, potentially to junk bond status, impacting its ability to finance operations and capital expenditures.
  • 4The company suggests that the financial consequences of a rate freeze could lead to bankruptcy protection.
  • 5ComEd argues the proposed legislation would violate federal law and the U.S. Constitution and is prepared to pursue legal challenges.
  • 6ComEd highlights that current residential rates are already among the lowest in major U.S. cities and have decreased by 20% since 1997.
  • 7ComEd has proposed its own plan where residential customers would pay no more than 1995 rates through 2009, as a transition to market rates.

Frequently Asked Questions

The main issue is ComEd's opposition to a proposed Illinois state legislation that would freeze electric rates for three years. The company believes this freeze would be detrimental to its financial health and the reliability of service.

ComEd projects annual losses between $500 million and $1.4 billion, depending on the market price of electricity it will have to purchase starting in 2007. This is because ComEd does not own generation facilities and will be exposed to market price volatility.

ComEd anticipates an immediate downgrade of its credit ratings, potentially to 'junk bond' status, if the rate freeze legislation is enacted. This would make it more expensive and difficult for the company to secure financing.

Yes, ComEd believes the proposed rate freeze extension would violate federal law and the U.S. Constitution, and the company is prepared to challenge such legislation in court.

ComEd has proposed a plan to ease the transition for residential customers, ensuring they pay no more than 1995 rates through 2009, even as rates move towards market prices.