What is the main reason for the announcement regarding Oyster Creek Generating Station?

Exelon Generation is ceasing operations at the Oyster Creek Generating Station by December 31, 2019, as part of an agreement with the New Jersey Department of Environmental Protection. This agreement also relieves Exelon from the requirement to install costly closed-cycle cooling systems, as the plant's remaining operational life is limited.

What are the financial implications of this decision for Exelon?

The primary financial impact involves accelerated depreciation and accretion expense related to the asset retirement obligation due to the reduced economic useful life of the plant. These are non-cash charges. Preliminary estimates indicate $5 million (pre-tax) in 2010 and an average of $25-$30 million (pre-tax) annually from 2011 to 2015. There are also employee retention payments that will add expense.

Will Exelon incur significant capital expenditures for environmental upgrades at Oyster Creek?

No, the agreement with the NJDEP determines that closed-cycle cooling is not the best available technology for OCGS given its planned closure by 2019. This means Exelon will not need to invest in expensive cooling towers or similar retrofitting, and capital expenditures through 2013 are not expected to materially differ from previous forecasts.

When will the operational changes take effect, and what is the estimated financial impact over time?

Exelon Generation will permanently cease operations by December 31, 2019. The financial impact will be recognized through accelerated depreciation and accretion expenses. Pre-tax charges are estimated at $5 million for 2010, an average of $25-$30 million annually from 2011-2015, and approximately $4 million annually from 2011-2015 for employee retention costs.

EXC 8-K: Financial Events

Summary

Exelon Corporation (EXC) filed an 8-K on December 9, 2010, to report a significant operational decision regarding its Oyster Creek Generating Station (OCGS). Exelon Generation Company, LLC (Generation) announced it will permanently cease generation operations at OCGS by December 31, 2019. This decision is part of an agreement with the New Jersey Department of Environmental Protection (NJDEP) under an Administrative Consent Order (ACO). The NJDEP has determined that closed-cycle cooling is not the best available technology for OCGS given its limited remaining operational life. This implies Exelon will not be required to undertake costly retrofitting of cooling towers. The primary financial impact for investors stems from the revised economic useful life of the OCGS. This will result in accelerated depreciation and accretion expense related to the asset retirement obligation. While these are non-cash charges, they will impact reported earnings. Exelon has provided preliminary estimates of these charges, expecting approximately $5 million (pre-tax) in 2010, followed by an average of $25-$30 million (pre-tax) annually from 2011 through 2015. Additionally, employee retention payments of approximately $20 million in 2011 will result in approximately $4 million (pre-tax) of expense each year from 2011 to 2015. Capital expenditures through 2013 are not expected to change significantly.

Key Highlights

1Exelon Generation will cease operations at Oyster Creek Generating Station (OCGS) no later than December 31, 2019.
2Agreement reached with the New Jersey Department of Environmental Protection (NJDEP) via an Administrative Consent Order (ACO).
3NJDEP has determined closed-cycle cooling is not the best available technology for OCGS, avoiding significant retrofit costs.
4The decision reduces the expected economic useful life of OCGS.
5Financial impacts include accelerated depreciation and accretion expense, estimated at $5 million (pre-tax) for 2010.
6Annual pre-tax charges of $25-$30 million are expected from 2011-2015 due to the change in asset retirement obligation.
7Employee retention payments totaling $20 million in 2011 will result in $4 million (pre-tax) expense annually from 2011-2015.

EXELON CORP 8-K Report, Exit or Disposal Costs (Dec 9, 2010)

Summary

Key Highlights

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