-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DysMmIv64+Uq2IvlXYgkI4l1NwWZY8KE3eP3c5vd6gMJs7PZUv/YPTh2Y9LVi+Fh H102iLFto4tI+Qr5pjWd6A== 0000950131-96-003828.txt : 19960814 0000950131-96-003828.hdr.sgml : 19960814 ACCESSION NUMBER: 0000950131-96-003828 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960813 SROS: CSX SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNICOM CORP CENTRAL INDEX KEY: 0000918040 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 363961038 STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11375 FILM NUMBER: 96609734 BUSINESS ADDRESS: STREET 1: 10 SOUTH DEARBORN STREET 37TH FLOOR STREET 2: P O BOX 767 CITY: CHICAGO STATE: IL ZIP: 60690 BUSINESS PHONE: 3123943117 MAIL ADDRESS: STREET 1: P O BOX 767 CITY: CHICAGO STATE: IL ZIP: 60690 FORMER COMPANY: FORMER CONFORMED NAME: CECO HOLDING CO DATE OF NAME CHANGE: 19940125 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMMONWEALTH EDISON CO CENTRAL INDEX KEY: 0000022606 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 360938600 STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-01839 FILM NUMBER: 96609878 BUSINESS ADDRESS: STREET 1: ONE FIRST NATIONAL PLZ 37TH FL STREET 2: P O BOX 767 CITY: CHICAGO STATE: IL ZIP: 60690 BUSINESS PHONE: 3123944321 10-Q 1 FORM 10-Q - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to
COMMISSION FILE REGISTRANT; STATE OF INCORPORATION; IRS EMPLOYER NUMBER ADDRESS; AND TELEPHONE NUMBER IDENTIFICATION NO. ---------- ----------------------------------- ------------------ 1-11375 UNICOM CORPORATION 36-3961038 (an Illinois corporation) 37th Floor, 10 South Dearborn Street Post Office Box A-3005 Chicago, Illinois 60690-3005 312/394-7399 1-1839 COMMONWEALTH EDISON COMPANY 36-0938600 (an Illinois corporation) 37th Floor, 10 South Dearborn Street Post Office Box 767 Chicago, Illinois 60690-0767 312/394-4321
Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) have been subject to such filing requirements for the past 90 days. Yes X No Common Stock outstanding at July 31, 1996: Unicom Corporation 215,532,415 shares Commonwealth Edison Company 214,206,208 shares - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNICOM CORPORATION AND COMMONWEALTH EDISON COMPANY QUARTERLY REPORTS ON FORM 10-Q TO THE SECURITIES AND EXCHANGE COMMISSION FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996 This document contains the Quarterly Reports on Form 10-Q for the quarterly period ended June 30, 1996 for each of Unicom Corporation and Commonwealth Edison Company. Information contained herein relating to an individual registrant is filed by such registrant on its own behalf. Accordingly, except for its subsidiaries, Commonwealth Edison Company makes no representation as to information relating to Unicom Corporation or to any other companies affiliated with Unicom Corporation. INDEX
PAGE ----- Definitions.............................................................. 3 PART I. FINANCIAL INFORMATION Unicom Corporation and Subsidiary Companies: Financial Statements-- Report of Independent Public Accountants............................. 4 Statements of Consolidated Income for the three months, six months and twelve months ended June 30, 1995 and 1996...................... 5 Consolidated Balance Sheets--December 31, 1995 and June 30, 1996..... 6-7 Statements of Consolidated Capitalization--December 31, 1995 and June 30, 1996............................................................ 8 Statements of Consolidated Retained Earnings for the three months, six months and twelve months ended June 30, 1995 and 1996........... 9 Statements of Consolidated Cash Flows for the three months, six months and twelve months ended June 30, 1995 and 1996............... 10 Notes to Financial Statements........................................ 11-30 Management's Discussion and Analysis of Financial Condition and Results of Operations......................................................... 31-42 Commonwealth Edison Company and Subsidiary Companies: Financial Statements-- Report of Independent Public Accountants............................. 44 Statements of Consolidated Income for the three months, six months and twelve months ended June 30, 1995 and 1996...................... 45 Consolidated Balance Sheets--December 31, 1995 and June 30, 1996..... 46-47 Statements of Consolidated Capitalization--December 31, 1995 and June 30, 1996............................................................ 48 Statements of Consolidated Retained Earnings for the three months, six months and twelve months ended June 30, 1995 and 1996........... 49 Statements of Consolidated Cash Flows for the three months, six months and twelve months ended June 30, 1995 and 1996............... 50 Notes to Financial Statements........................................ 51-55 Management's Discussion and Analysis of Financial Condition and Results of Operations......................................................... 56 PART II. OTHER INFORMATION Item 1. Legal Proceedings.............................................. 57-62 Item 4. Submission of Matters to a Vote of Security Holders............ 62-63 Item 6. Exhibits and Reports on Form 8-K............................... 63 SIGNATURES............................................................... 64
2 DEFINITIONS The following terms are used in this document with the following meanings:
TERM MEANING -------------------- --------------------------------------------------------- AFUDC Allowance for funds used during construction AMT Alternative minimum tax BWR Boiling water reactor CERCLA Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended CFC Chlorofluorocarbon Circuit Court Circuit Court of Cook County, Illinois Clean Air Amendments Clean Air Act Amendments of 1990 ComEd Commonwealth Edison Company Congress U.S. Congress Cotter Cotter Corporation, which is a wholly-owned subsidiary of ComEd. DOE U.S. Department of Energy EMFs Electric and magnetic fields FASB Financial Accounting Standards Board FERC Federal Energy Regulatory Commission ICC Illinois Commerce Commission Illinois EPA Illinois Environmental Protection Agency Indiana Company Commonwealth Edison Company of Indiana, Inc., which is a wholly-owned subsidiary of ComEd. IPCB Illinois Pollution Control Board ISO Independent System Operator MAIN Mid-America Interconnected Network MGP Manufactured gas plant NEIL Nuclear Electric Insurance Limited NML Nuclear Mutual Limited NPDES National Pollutant Discharge Elimination System NPL National Priorities List NRC Nuclear Regulatory Commission PRPs Potentially responsible parties under CERCLA PTAB Property Tax Appeals Board Rate Order ICC rate order issued on January 9, 1995, as subsequently modified Remand Order ICC rate order issued in January 1993, as subsequently modified SEC Securities and Exchange Commission SFAS Statement of Financial Accounting Standards Trust ComEd Financing I, which is a wholly-owned subsidiary trust of ComEd. Unicom Unicom Corporation Unicom Enterprises Unicom Enterprises Inc., which is a wholly-owned subsidiary of Unicom. Unicom Thermal Unicom Thermal Technologies Inc., which is a wholly-owned subsidiary of Unicom Enterprises. Units ComEd's nuclear generating units known as Byron Unit 2 and Braidwood Units 1 and 2 U.S. EPA U.S. Environmental Protection Agency Westinghouse Westinghouse Electric Corporation
3 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Unicom Corporation: We have audited the accompanying consolidated balance sheets and statements of consolidated capitalization of Unicom Corporation (an Illinois corporation) and subsidiary companies as of December 31, 1995 and June 30, 1996, and the related statements of consolidated income, retained earnings and cash flows for the three-month, six-month and twelve-month periods ended June 30, 1995 and 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Unicom Corporation and subsidiary companies as of December 31, 1995 and June 30, 1996, and the results of their operations and their cash flows for the three-month, six-month and twelve-month periods ended June 30, 1995 and 1996, in conformity with generally accepted accounting principles. Arthur Andersen LLP Chicago, Illinois August 8, 1996 4 UNICOM CORPORATION AND SUBSIDIARY COMPANIES STATEMENTS OF CONSOLIDATED INCOME The following Statements of Consolidated Income for the three months, six months and twelve months ended June 30, 1995 and 1996 reflect the results of past operations and are not intended as any representation as to results of operations for any future period. Future operations will necessarily be affected by various and diverse factors and developments, including changes in electric rates, population, business activity, competition, taxes, environmental control, energy use, fuel supply, cost of labor, fuel, purchased power and other matters, the nature and effect of which cannot now be determined.
THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED JUNE 30 JUNE 30 JUNE 30 ---------------------- ---------------------- ---------------------- 1995 1996 1995 1996 1995 1996 ---------- ---------- ---------- ---------- ---------- ---------- (THOUSANDS EXCEPT PER SHARE DATA) Operating Revenues...... $1,559,521 $1,547,916 $3,137,657 $3,231,845 $6,458,262 $7,004,233 ---------- ---------- ---------- ---------- ---------- ---------- Operating Expenses and Taxes: Fuel................... $ 259,201 $ 254,557 $ 528,694 $ 538,532 $1,075,462 $1,096,946 Purchased power........ 6,443 33,061 9,986 64,500 24,276 118,892 Operation and maintenance........... 511,236 536,795 1,042,326 1,050,472 2,008,187 2,183,798 Depreciation........... 224,846 230,176 449,952 461,101 893,556 909,183 Recovery of regulatory assets................ 3,818 3,818 7,636 7,636 15,272 15,272 Taxes (except income).. 189,791 159,518 399,696 377,757 799,182 811,359 Income taxes........... 94,781 84,093 176,562 195,565 448,442 545,521 Investment tax credits deferred--net ........ (7,179) (7,165) (14,358) (14,332) (28,690) (28,685) ---------- ---------- ---------- ---------- ---------- ---------- $1,282,937 $1,294,853 $2,600,494 $2,681,231 $5,235,687 $5,652,286 ---------- ---------- ---------- ---------- ---------- ---------- Operating Income........ $ 276,584 $ 253,063 $ 537,163 $ 550,614 $1,222,575 $1,351,947 ---------- ---------- ---------- ---------- ---------- ---------- Other Income and (Deductions): Interest on long-term debt.................. $ (150,836) $ (130,352) $ (303,106) $ (261,171) $ (611,340) $ (545,604) Interest on notes payable............... (221) (4,436) (372) (8,687) (741) (11,595) Allowance for funds used during construction-- Borrowed funds....... 3,192 6,367 4,877 11,265 13,294 17,525 Equity funds......... 3,776 6,068 5,869 10,766 16,071 18,026 Income taxes applicable to nonoperating activities............ 201 790 469 5,066 6,974 9,682 Provision for dividends-- Preferred and preference stocks of ComEd................ (16,865) (16,472) (33,773) (32,986) (67,673) (69,172) ComEd-obligated mandatorily redeemable preferred securities of subsidiary trust..... -- (4,240) -- (8,480) -- (12,908) Miscellaneous--net..... (6,965) (10,475) (13,660) (29,142) (39,440) (58,590) ---------- ---------- ---------- ---------- ---------- ---------- $ (167,718) $ (152,750) $ (339,696) $ (313,369) $ (682,855) $ (652,636) ---------- ---------- ---------- ---------- ---------- ---------- Net Income Before Extraordinary Item..... $ 108,866 $ 100,313 $ 197,467 $ 237,245 $ 539,720 $ 699,311 Extraordinary Loss Related to Early Redemption of Long-Term Debt, Less Applicable Income Taxes........... -- -- -- -- -- (20,022) ---------- ---------- ---------- ---------- ---------- ---------- Net Income.............. $ 108,866 $ 100,313 $ 197,467 $ 237,245 $ 539,720 $ 679,289 ========== ========== ========== ========== ========== ========== Average Number of Common Shares Outstanding..... 214,677 215,438 214,553 215,343 214,382 215,087 Earnings per Common Share Before Extraordinary Item..... $0.51 $0.47 $0.92 $1.10 $2.52 $3.25 Extraordinary Loss Related to Early Redemption of Long-Term Debt, Less Applicable Income Taxes........... -- -- -- -- -- (0.09) ---------- ---------- ---------- ---------- ---------- ---------- Earnings per Common Share.................. $0.51 $0.47 $0.92 $1.10 $2.52 $3.16 ========== ========== ========== ========== ========== ========== Cash Dividends Declared per Common Share....... $0.40 $0.40 $0.80 $0.80 $1.60 $1.60
The accompanying Notes to Financial Statements are an integral part of the above statements. 5 UNICOM CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, JUNE 30, ASSETS 1995 1996 ------ ------------ ----------- (THOUSANDS OF DOLLARS) Utility Plant: Plant and equipment, at original cost (includes construction work in progress of $1,105 million and $1,172 million, respectively)................. $27,052,778 $27,553,015 Less--Accumulated provision for depreciation....... 10,565,093 10,967,396 ----------- ----------- $16,487,685 $16,585,619 Nuclear fuel, at amortized cost.................... 734,667 770,527 ----------- ----------- $17,222,352 $17,356,146 ----------- ----------- Investments and Other Property: Nuclear decommissioning funds...................... $ 1,237,527 $ 1,341,843 Subsidiary companies............................... 113,657 112,734 Other, at cost..................................... 96,937 123,323 ----------- ----------- $ 1,448,121 $ 1,577,900 ----------- ----------- Current Assets: Cash............................................... $ 3,575 $ 3,689 Temporary cash investments......................... 47,801 50,276 Special deposits................................... 3,546 565 Receivables-- Customers........................................ 580,254 562,914 Taxes............................................ 82,319 1,889 Other............................................ 83,151 41,770 Provisions for uncollectible accounts............ (11,828) (12,544) Coal and fuel oil, at average cost................. 129,176 166,981 Materials and supplies, at average cost............ 333,539 342,291 Deferred unrecovered energy costs.................. 46,028 98,165 Deferred income taxes related to current assets and liabilities....................................... 107,991 113,737 Prepayments and other.............................. 45,272 37,092 ----------- ----------- $ 1,450,824 $ 1,406,825 ----------- ----------- Deferred Charges and Other Noncurrent Assets: Regulatory assets.................................. $ 2,467,386 $ 2,441,489 Unrecovered energy costs........................... 588,152 501,283 Other.............................................. 70,153 59,772 ----------- ----------- $ 3,125,691 $ 3,002,544 ----------- ----------- $23,246,988 $23,343,415 =========== ===========
The accompanying Notes to Financial Statements are an integral part of the above statements. 6 UNICOM CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, JUNE 30, CAPITALIZATION AND LIABILITIES 1995 1996 ------------------------------ ------------ ----------- (THOUSANDS OF DOLLARS) Capitalization (see accompanying statements): Common stock equity................................. $ 5,769,637 $ 5,836,860 Preferred and preference stocks of ComEd-- Without mandatory redemption requirements......... 508,034 507,926 Subject to mandatory redemption requirements...... 261,475 245,609 ComEd-obligated mandatorily redeemable preferred se- curities of subsidiary trust*...................... 200,000 200,000 Long-term debt...................................... 6,549,335 6,062,195 ----------- ----------- $13,288,481 $12,852,590 ----------- ----------- Current Liabilities: Notes payable-- Commercial paper.................................. $ 261,000 $ 326,850 Bank loans........................................ 7,150 7,550 Current portion of long-term debt, redeemable pref- erence stock and capitalized lease obligations of subsidiary companies............................... 434,563 914,981 Accounts payable.................................... 606,806 421,563 Accrued interest.................................... 171,488 166,417 Accrued taxes....................................... 215,966 282,667 Dividends payable................................... 102,497 106,898 Customer deposits................................... 44,521 44,796 Other............................................... 93,841 84,218 ----------- ----------- $ 1,937,832 $ 2,355,940 ----------- ----------- Deferred Credits and Other Noncurrent Liabilities: Deferred income taxes............................... $ 4,506,043 $ 4,525,759 Accumulated deferred investment tax credits......... 689,041 674,709 Accrued spent nuclear fuel disposal fee and related interest........................................... 624,191 640,519 Obligations under capital leases of subsidiary com- panies............................................. 375,524 414,763 Regulatory liabilities.............................. 601,002 596,978 Other............................................... 1,224,874 1,282,157 ----------- ----------- $ 8,020,675 $ 8,134,885 ----------- ----------- Commitments and Contingent Liabilities (Note 19) $23,246,988 $23,343,415 =========== ===========
*As described in Note 7 of Notes to Financial Statements, the sole asset of ComEd Financing I, a subsidiary trust of ComEd, is $206.2 million principal amount of ComEd's 8.48% subordinated deferrable interest notes due September 30, 2035. The accompanying Notes to Financial Statements are an integral part of the above statements. 7 UNICOM CORPORATION AND SUBSIDIARY COMPANIES STATEMENTS OF CONSOLIDATED CAPITALIZATION
DECEMBER 31, JUNE 30, 1995 1996 ----------- --------- (THOUSANDS OF DOLLARS) Common Stock Equity: Common stock, without par value-- Outstanding--215,255,998 shares and 215,508,674 shares, respectively (excludes $4 million as of June 30, 1996 held by trustee for Unicom Stock Bonus Deferral Plan)............................. $ 4,916,438 $ 4,918,725 Preference stock expense of ComEd.................. (3,694) (3,687) Retained earnings.................................. 856,893 921,822 ----------- ----------- $ 5,769,637 $ 5,836,860 ----------- ----------- Preferred and Preference Stocks of ComEd-- Without Mandatory Redemption Requirements: Preference stock, cumulative, without par value-- Outstanding--13,499,549 shares.................. $ 504,957 $ 504,957 $1.425 convertible preferred stock, cumulative, without par value-- Outstanding--96,753 shares and 93,374 shares, respectively................................... 3,077 2,969 Prior preferred stock, cumulative, $100 par value per share-- No shares outstanding........................... -- -- ----------- ----------- $ 508,034 $ 507,926 ----------- ----------- Subject to Mandatory Redemption Requirements: Preference stock, cumulative, without par value-- Outstanding--2,934,990 shares and 2,904,990 shares, respectively........................... $ 292,163 $ 289,183 Current redemption requirements for preference stock included in current liabilities........... (30,688) (43,574) ----------- ----------- $ 261,475 $ 245,609 ----------- ----------- ComEd-Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trust: Outstanding--8,000,000............................. $ 200,000 $ 200,000 ----------- ----------- Long-Term Debt: First mortgage bonds: Maturing 1996 through 2000--5 1/4% to 9 3/8%..... $ 1,170,000 $ 1,120,000 Maturing 2001 through 2010--3 1/2% to 8 3/8%..... 1,465,400 1,640,400 Maturing 2011 through 2020--5.85% to 9 7/8%...... 1,266,000 1,266,000 Maturing 2021 through 2023--7 3/4% to 9 1/8%..... 1,385,000 1,385,000 ----------- ----------- $ 5,286,400 $ 5,411,400 Sinking fund debentures, due 1999 through 2011-- 2 3/4% to 7 5/8%.................................. 110,505 107,857 Pollution control obligations, due 2004 through 2014--3.30% to 6 7/8%............................. 317,200 142,200 Other long-term debt............................... 1,126,318 1,143,178 Deposit for retirement of long-term debt........... -- (975) Current maturities of long-term debt included in current liabilities............................... (235,992) (689,597) Unamortized net debt discount and premium.......... (55,096) (51,868) ----------- ----------- $ 6,549,335 $ 6,062,195 ----------- ----------- $13,288,481 $12,852,590 =========== ===========
The accompanying Notes to Financial Statements are an integral part of the above statements. 8 UNICOM CORPORATION AND SUBSIDIARY COMPANIES STATEMENTS OF CONSOLIDATED RETAINED EARNINGS
THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED JUNE 30 JUNE 30 JUNE 30 ------------------- ------------------- ------------------- 1995 1996 1995 1996 1995 1996 -------- ---------- -------- ---------- -------- ---------- (THOUSANDS OF DOLLARS) Balance at Beginning of Period................. $563,761 $ 907,723 $560,971 $ 856,893 $390,691 $ 586,714 Add--Net income......... 108,866 100,313 197,467 237,245 539,720 679,289 -------- ---------- -------- ---------- -------- ---------- $672,627 $1,008,036 $758,438 $1,094,138 $930,411 $1,266,003 -------- ---------- -------- ---------- -------- ---------- Deduct-- Cash dividends de- clared on common stock........ $ 85,906 $ 86,207 $171,717 $ 172,309 $343,131 $ 344,211 Other capital stock transactions--net... 7 7 7 7 566 (30) -------- ---------- -------- ---------- -------- ---------- $ 85,913 $ 86,214 $171,724 $ 172,316 $343,697 $ 344,181 -------- ---------- -------- ---------- -------- ---------- Balance at End of Peri- od..................... $586,714 $ 921,822 $586,714 $ 921,822 $586,714 $ 921,822 ======== ========== ======== ========== ======== ==========
The accompanying Notes to Financial Statements are an integral part of the above statements. 9 UNICOM CORPORATION AND SUBSIDIARY COMPANIES STATEMENTS OF CONSOLIDATED CASH FLOWS
THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED JUNE 30 JUNE 30 JUNE 30 -------------------- --------------------- ------------------------ 1995 1996 1995 1996 1995 1996 --------- --------- ---------- --------- ----------- ----------- (THOUSANDS OF DOLLARS) Cash Flow from Operating Activities: Net income............. $ 108,866 $ 100,313 $ 197,467 $ 237,245 $ 539,720 $ 679,289 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization........ 238,254 238,539 476,883 479,727 942,567 952,257 Deferred income taxes and investment tax credits--net........ 24,412 26,060 34,426 42,320 197,602 164,711 Extraordinary loss related to early redemption of long- term debt........... -- -- -- -- -- 33,158 Equity component of allowance for funds used during construction........ (3,776) (6,068) (5,869) (10,766) (16,071) (18,026) Revenue refunds and related interest.... 20 -- 15,135 -- (532,947) -- Recovery of regulatory assets... 3,818 3,818 7,636 7,636 15,272 15,272 Provisions/(payments) for liability for early retirement and separation costs-- net................. 180 2,373 560 (29,930) 2,603 30,223 Net effect on cash flows of changes in: Receivables........ (10,144) 23,575 (8,926) 139,867 (80,300) (28,965) Coal and fuel oil.. (12,802) (22,314) (24,426) (37,805) (2,271) (33,683) Materials and supplies.......... 4,475 (7,149) 18,082 (8,752) 36,008 24,239 Accounts payable excluding nuclear fuel lease principal payments and early retirement and separation costs-- net............... 64,493 22,452 78,911 (47,234) 180,397 332,142 Accrued interest and taxes......... 5,145 20,855 88,550 61,630 117,114 (29,061) Other changes in certain current assets and liabilities....... 3,160 (17,890) 9,888 (8,538) (9,991) 8,118 Other--net........... 50,597 18,816 130,097 23,521 134,814 33,248 --------- --------- ---------- --------- ----------- ----------- $ 476,698 $ 403,380 $1,018,414 $ 848,921 $ 1,524,517 $ 2,162,922 --------- --------- ---------- --------- ----------- ----------- Cash Flow from Investing Activities: Construction expenditures.......... $(185,870) $(254,671) $ (392,133) $(543,226) $ (748,226) $(1,078,420) Nuclear fuel expenditures.......... (72,297) (109,184) (111,154) (143,603) (263,120) (321,567) Equity component of allowance for funds used during construction.......... 3,776 6,068 5,869 10,766 16,071 18,026 Contributions to nuclear decommissioning funds................. -- -- (96,229) (83,178) (132,550) (119,602) Investment in subsidiary companies.. (1) -- (1) -- (50) (7) Other investments and special deposits...... 6,921 -- (1,149) (48) 305 (493) --------- --------- ---------- --------- ----------- ----------- $(247,471) $(357,787) $ (594,797) $(759,289) $(1,127,570) $(1,502,063) --------- --------- ---------- --------- ----------- ----------- Cash Flow from Financing Activities: Issuance of securities-- Long-term debt........ $ 5,000 $ 231,902 $ 25,000 $ 231,902 $ 294,175 $ 268,902 Preferred securities of subsidiary trust.. -- -- -- -- -- 200,000 Capital stock......... 5,586 5,803 9,745 6,414 85,751 22,081 Retirement and redemption of securities-- Long-term debt........ (262,026) (267,056) (291,663) (268,196) (639,841) (1,113,805) Capital stock......... (3,000) (3,000) (3,000) (3,000) (17,822) (17,822) Deposits and securities held for retirement and redemption of securities............ 1,403 2,643 (271) (975) (274) (598) Premium paid on early redemption of long- term debt............. -- -- -- -- (3,664) (25,823) Cash dividends paid on common stock.......... (85,812) (86,101) (171,550) (172,084) (342,854) (343,909) Proceeds from sale/leaseback of nuclear fuel.......... -- 35,402 115,340 159,615 253,968 237,491 Nuclear fuel lease principal payments.... (52,832) (50,918) (115,617) (106,969) (225,770) (229,197) Increase in short-term borrowings............ 40,000 98,850 40,000 66,250 41,050 287,250 --------- --------- ---------- --------- ----------- ----------- $(351,681) $ (32,475) $ (392,016) $ (87,043) $ (555,281) $ (715,430) --------- --------- ---------- --------- ----------- ----------- Increase (Decrease) in Cash and Temporary Cash Investments............ $(122,454) $ 13,118 $ 31,601 $ 2,589 $ (158,334) $ (54,571) Cash and Temporary Cash Investments at Beginning of Period.... 230,990 40,847 76,935 51,376 266,870 108,536 --------- --------- ---------- --------- ----------- ----------- Cash and Temporary Cash Investments at End of Period................. $ 108,536 $ 53,965 $ 108,536 $ 53,965 $ 108,536 $ 53,965 ========= ========= ========== ========= =========== ===========
The accompanying Notes to Financial Statements are an integral part of the above statements. 10 UNICOM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. Corporate Structure and Basis of Presentation. Unicom was incorporated in January 1994 and became the parent holding company of ComEd and Unicom Enterprises in a corporate restructuring that became effective on September 1, 1994. Previously, Unicom Enterprises was a wholly-owned subsidiary of ComEd. The restructuring was accounted for by the pooling-of-interests method. Under this method, the assets, liabilities and ownership interests of each of the companies are combined at their existing recorded amounts as of the restructuring date, and the financial statements are presented herein as if the restructuring took place as of the earliest period shown. In the restructuring, each of the 214,185,572 outstanding shares of ComEd common stock, par value $12.50 per share, was converted into one fully paid and non-assessable share of Unicom common stock, without par value. The preferred and preference stocks, common stock purchase warrants, first mortgage bonds and other debt obligations of ComEd were unchanged in the restructuring and remain as ComEd's outstanding securities and obligations. ComEd, an electric utility, is the principal subsidiary of Unicom. Unicom Enterprises is an unregulated subsidiary of Unicom and is engaged, through subsidiaries, in energy service activities. Unicom also has one other subsidiary that was formed to engage in unregulated activities. The consolidated financial statements include the accounts of Unicom, ComEd, the Indiana Company, ComEd Financing I and Unicom's unregulated subsidiaries. All significant intercompany transactions have been eliminated. ComEd's investments in other subsidiary companies, which are not material in relation to ComEd's financial position or results of operations, are accounted for in accordance with the equity method of accounting. Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Regulation. ComEd is subject to regulation as to accounting and ratemaking policies and practices by the ICC and FERC. ComEd's accounting policies and the accompanying consolidated financial statements conform to generally accepted accounting principles applicable to rate-regulated enterprises and reflect the effects of the ratemaking process in accordance with SFAS No. 71, Accounting for the Effects of Certain Types of Regulation. Such effects concern mainly the time at which various items enter into the determination of net income in order to follow the principle of matching costs and revenues. Regulatory Assets and Liabilities. Regulatory assets are incurred costs which have been deferred and are amortized for ratemaking and accounting purposes. Regulatory liabilities represent amounts to be settled with customers through future rates. Regulatory assets and liabilities reflected on the Consolidated Balance Sheets at December 31, 1995 and June 30, 1996 were as follows: 11 UNICOM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--CONTINUED
DECEMBER 31, JUNE 30, 1995 1996 ------------ ---------- (THOUSANDS OF DOLLARS) Regulatory assets: Deferred income taxes (1)............................. $1,689,832 $1,669,018 Deferred carrying charges (2)......................... 409,923 403,401 Nuclear decommissioning costs--Dresden Unit 1 (3)..... 138,058 145,709 Unamortized loss on reacquired debt (4)............... 160,440 155,850 Other................................................. 69,133 67,511 ---------- ---------- $2,467,386 $2,441,489 ========== ========== Regulatory liabilities: Deferred income taxes (1)............................. $ 601,002 $ 596,978 ========== ==========
- -------- (1) Recorded in compliance with SFAS No. 109. (2) Recorded as authorized in the Remand Order. The amortization period is over the remaining lives of the Units. (3) Amortized over the remaining life of Dresden station. See "Depreciation and Decommissioning" below for additional information. (4) Amortized over the remaining lives of the long-term debt issued to finance the reacquisition. See "Loss on Reacquired Debt" below for additional information. See "Deferred Unrecovered Energy Costs" below regarding the fuel adjustment clause, the DOE assessment and coal reserves. If a portion of ComEd's operations was no longer subject to the provisions of SFAS No. 71 as a result of a change in regulation or the effects of competition, ComEd would be required to write off the related regulatory assets and liabilities. In addition, ComEd would be required to determine any impairment to other assets and write down such assets to their fair value. SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, which was adopted on January 1, 1996, establishes accounting standards for the impairment of long-lived assets. The SFAS also requires that regulatory assets which are no longer probable of recovery through future revenue be charged to earnings. SFAS No. 121 did not have an impact on ComEd's financial position or results of operations upon adoption. Customer Receivables and Revenues. ComEd is engaged principally in the production, purchase, transmission, distribution and sale of electricity to a diverse base of residential, commercial and industrial customers. ComEd's electric service territory has an area of approximately 11,540 square miles and an estimated population of approximately eight million as of December 31, 1995 and 1994. It includes the city of Chicago, an area of about 225 square miles with an estimated population of approximately three million from which ComEd derived approximately one-third of its ultimate consumer revenues in the twelve months ended June 30, 1996. ComEd had approximately 3.4 million electric customers at June 30, 1996. Depreciation and Decommissioning. ComEd's depreciation is provided on the straight-line basis by amortizing the cost of depreciable plant and equipment over estimated composite service lives. Non-nuclear plant and equipment is depreciated at annual rates developed for each class of plant based on their composite service lives. Provisions for depreciation were at average annual rates of 3.14% for the three months ended June 30, 1995 and 1996, 3.13% for the six months and twelve months ended June 30, 1995, and 3.14% for the six months and twelve months ended June 30, 1996, of average depreciable utility plant and equipment. The annual rate for nuclear plant and equipment is 2.88%, which excludes 12 UNICOM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--CONTINUED separately collected decommissioning costs. See Note 2 for additional information concerning ComEd's announcement of customer initiatives which include the increase of depreciation charges on nuclear generating units. Nuclear plant decommissioning costs are accrued over the expected service lives of the related nuclear generating units. The accrual is based on an annual levelized cost of the unrecovered portion of estimated decommissioning costs which are escalated for expected inflation to the expected time of decommissioning and are net of expected earnings on the trust funds. See "Decommissioning" under "Management's Discussion and Analysis of Financial Condition and Results of Operations," subcaption "Results of Operations," for a discussion of questions raised by the staff of the SEC and a FASB review regarding the electric utility industry method of accounting for decommissioning costs. Dismantling is expected to occur relatively soon after the end of the useful life of each related generating station. The accrual for decommissioning is based on the prompt removal method authorized by NRC guidelines. ComEd's twelve operating units have estimated remaining service lives ranging from 10 to 31 years. ComEd's first nuclear unit, Dresden Unit 1, is retired and will be dismantled upon the retirement of the remaining units at that station, which is consistent with the regulatory treatment for the related decommissioning costs. Based on ComEd's most recent study, decommissioning costs, including the cost of decontamination and dismantling, are estimated to aggregate $3.7 billion in current-year (1996) dollars excluding a contingency allowance. ComEd estimates that it will expend approximately $15.5 billion, excluding any contingency allowance, for decommissioning costs primarily during the period from 2007 through 2032. Such costs are expected to be funded by the external decommissioning trusts which ComEd established in compliance with Illinois law and into which ComEd has been making annual contributions. Future decommissioning cost estimates may be significantly affected by the adoption of or changes to NRC regulations as well as changes in the assumptions used in making such estimates. Pursuant to the Rate Order, beginning in 1995, ComEd collects decommissioning costs from its ratepayers under a rider which allows annual adjustments to decommissioning cost collections outside the context of a traditional rate proceeding. The estimated decommissioning costs allowed under the rider exclude a contingency allowance. Contingency allowances used in decommissioning cost estimates provide for currently unspecifiable costs that are likely to occur after decommissioning begins and generally range from 20% to 25% of the currently specifiable costs. Under its most recent annual rider, filed with the ICC on February 28, 1996, ComEd has decreased its estimated annual decommissioning cost accrual from $113.5 million to $108.8 million, primarily reflecting stronger than expected after-tax returns on the external trust funds in 1995. The ICC issued an order approving the rider filing on April 24, 1996. As a result of the ICC approval of the rider filing, beginning April 30, 1996, the effective date of the order, ComEd began accruing and collecting $108.8 million annually for decommissioning costs. The assumptions used to calculate the $108.8 million decommissioning cost accrual include: the decommissioning cost estimate of $3.7 billion in current-year (1996) dollars, after-tax earnings on the tax-qualified and nontax-qualified decommissioning funds of 7.30% and 6.26%, respectively, as well as an escalation rate for future decommissioning costs of 5.5%. The annual accrual of $108.8 million provided over the lives of the nuclear plants, coupled with the expected fund earnings and amounts previously recovered in rates, is expected to aggregate approximately $15.5 billion. The annual accrual and collection amounts will be reviewed again during the first quarter of 1997. For the twelve operating nuclear units, decommissioning costs are recorded as portions of depreciation expense and accumulated provision for depreciation on the Statements of Consolidated 13 UNICOM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--CONTINUED Income and the Consolidated Balance Sheets, respectively. As of June 30, 1996, the total decommissioning costs included in the accumulated provision for depreciation were $1,373 million. For ComEd's retired nuclear unit, Dresden Unit 1, the total estimated liability at June 30, 1996 in current-year (1996) dollars of $270 million was recorded on the Consolidated Balance Sheets as a noncurrent liability and the unrecovered portion of the liability of approximately $146 million was recorded as a regulatory asset. Under Illinois law, decommissioning cost collections are required to be deposited into external trusts; and, consequently, such collections do not add to the cash flows available for general corporate purposes. The ICC has approved ComEd's funding plan which provides for annual contributions of current accruals and ratable contributions of past accruals over the remaining service lives of the nuclear plants. At June 30, 1996, the past accruals that are required to be contributed to the external trusts aggregate $150 million. The fair value of funds accumulated in the external trusts at June 30, 1996 was approximately $1,342 million which includes pre-tax unrealized appreciation of $150 million. The earnings on the external trusts accumulate in the fund balance and in the accumulated provision for depreciation. Amortization of Nuclear Fuel. The cost of nuclear fuel is amortized to fuel expense based on the quantity of heat produced using the unit of production method. As authorized by the ICC, provisions for spent nuclear fuel disposal costs have been recorded at a level required to recover the fee payable on current nuclear-generated and sold electricity and the current interest accrual on the one-time fee payable to the DOE for nuclear generation prior to April 7, 1983. The one-time fee and interest thereon have been recovered and the current fee and current interest on the one-time fee are currently being recovered through the fuel adjustment clause. See Note 10 for further information concerning the disposal of spent nuclear fuel, the one-time fee and the interest accrual on the one-time fee. Nuclear fuel expenses, including leased fuel costs and provisions for spent nuclear fuel disposal costs, were $98 million and $84 million for the three months ended June 30, 1995 and 1996, respectively, $197 million and $179 million for the six months ended June 30, 1995 and 1996, respectively, and $388 million and $374 million for the twelve months ended June 30, 1995 and 1996, respectively. Income Taxes. Deferred income taxes are provided for income and expense items recognized for financial accounting purposes in periods that differ from those for income tax purposes. Income taxes deferred in prior years are charged or credited to income as the book/tax timing differences reverse. Prior years' deferred investment tax credits are amortized through credits to income generally over the lives of the related property. Income tax credits resulting from interest charges applicable to nonoperating activities, principally construction, are classified as other income. AFUDC. In accordance with the uniform systems of accounts prescribed by regulatory authorities, ComEd capitalizes AFUDC, compounded semiannually, which represents the estimated cost of funds used to finance its construction program. The equity component of AFUDC is recorded on an after-tax basis and the borrowed funds component of AFUDC is recorded on a pre-tax basis. The average annual capitalization rates were 9.56% and 8.73% for the three months ended June 30, 1995 and 1996, respectively, 9.61% and 8.78% for the six months ended June 30, 1995 and 1996, respectively, and 9.73% and 9.11% for the twelve months ended June 30, 1995 and 1996, respectively. AFUDC does not contribute to the current cash flow of Unicom or ComEd. Interest. Total interest costs incurred on debt, leases and other obligations were $177 million and $158 million for the three months ended June 30, 1995 and 1996, respectively, $354 million and $317 million for the six months ended June 30, 1995 and 1996, respectively, and $710 million and $659 million for the twelve months ended June 30, 1995 and 1996, respectively. 14 UNICOM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--CONTINUED Debt Discount, Premium and Expense. Discount, premium and expense on long- term debt of ComEd are being amortized over the lives of the respective issues. Loss on Reacquired Debt. Consistent with regulatory treatment, the net loss from ComEd's reacquisition in connection with refinancing of first mortgage bonds, sinking fund debentures and pollution control obligations prior to their scheduled maturity dates is deferred and amortized over the lives of the long- term debt issued to finance the reacquisition. Deferred Unrecovered Energy Costs. The fuel adjustment clause adopted by the ICC provides for the recovery of changes in fossil and nuclear fuel costs and the energy portion of purchased power costs as compared to the fuel and purchased energy costs included in ComEd's base rates. As authorized by the ICC, ComEd has recorded under or overrecoveries of allowable fuel and energy costs which, under the clause, are recoverable or refundable in subsequent months. Deferred unrecovered energy costs also include amounts to be recovered through the fuel adjustment clause for assessments by the DOE to fund a portion of the cost for the decontamination and decommissioning of uranium enrichment facilities owned and previously operated by the DOE. As of December 31, 1995 and June 30, 1996, an asset related to the assessments of approximately $179 million and $171 million, respectively, was recorded, of which the current portion of approximately $15 million was included in current assets on the Consolidated Balance Sheets. As of December 31, 1995 and June 30, 1996, a corresponding liability of approximately $152 million was recorded in other noncurrent liabilities and approximately $15 million was recorded in other current liabilities. At December 31, 1995 and June 30, 1996, ComEd had unrecovered fuel costs in the form of coal reserves of approximately $448 million and $411 million, respectively. In prior years, ComEd's commitments for the purchase of coal exceeded its requirements. Rather than take all the coal it was required to take, ComEd agreed to purchase the coal in place in the form of coal reserves. ComEd has been allowed to recover from its customers the costs of the coal reserves through its fuel adjustment clause as coal is used for the generation of electricity; however, ComEd is not earning a return on the expenditures for coal reserves. Such fuel costs expected to be recovered within one year amounting to approximately $24 million and $66 million at December 31, 1995 and June 30, 1996, respectively, have been included on the Consolidated Balance Sheets in current assets as deferred unrecovered energy costs. ComEd expects to fully recover the costs of the coal reserves by the year 2007. See Note 19 for additional information concerning ComEd's coal commitments. Reclassifications. Certain prior year amounts have been reclassified to conform with current period presentation. These reclassifications had no effect on net income. Statements of Consolidated Cash Flows. For purposes of the Statements of Consolidated Cash Flows, temporary cash investments, generally investments maturing within three months at the time of purchase, are considered to be cash equivalents. Supplemental cash flow information for the three months, six months and twelve months ended June 30, 1995 and 1996 was as follows:
THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED JUNE 30 JUNE 30 JUNE 30 ------------------- ----------------- --------------------- 1995 1996 1995 1996 1995 1996 --------- --------- -------- -------- ---------- ---------- (THOUSANDS OF DOLLARS) Supplemental Cash Flow Information: Cash paid during the period for: Interest (net of amount capitalized). $ 145,067 $ 115,372 $316,472 $272,867 $642,094 $ 561,327 Income taxes (net of refunds)............ $ 52,953 $ 9,284 $ 22,532 $ 9,284 $ 95,200 $ 354,460 Supplemental Schedule of Non-Cash Investing and Financing Activities: Capital lease obliga- tions incurred by subsidiary companies.. $ 1,433 $ 36,994 $118,243 $162,486 $ 258,091 $ 242,820
15 UNICOM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--CONTINUED (2) RATE MATTERS. On January 9, 1995, the ICC issued its Rate Order in the proceedings relating to ComEd's February 1994 rate increase request. The Rate Order provided, among other things, for (i) an increase in ComEd's total revenues of approximately $301.8 million (excluding add-on revenue taxes) or 5.2%, on an annual basis, including a $303.2 million increase in base rates, (ii) the collection of municipal franchise costs on an individual municipality basis through a rider, and (iii) the use of a rider, with annual review proceedings, to pass on to ratepayers increases or decreases in estimated costs associated with the decommissioning of ComEd's nuclear generating units. See Note 1 under "Depreciation and Decommissioning" for additional information related to the level of decommissioning cost collections. The ICC also determined that the Units were 100% "used and useful" and that the previously determined reasonable costs of such Units, as depreciated, should be included in full in ComEd's rate base. The rates provided in the Rate Order became effective on January 14, 1995; however, they are being collected subject to refund as a result of subsequent judicial action. As of June 30, 1996, electric operating revenues of approximately $473 million (excluding revenue taxes) are subject to refund. Intervenors and ComEd have filed appeals of the Rate Order with the Illinois Appellate Court. On December 11, 1995, ComEd announced a series of customer initiatives as part of its larger ongoing effort to address the need to give all customer classes the opportunity to benefit from increased competition in the electric utility business, while retaining the benefits (such as reliability) of current regulation and ensuring utilities' cost recovery for commitments made under the obligation to serve customers. The initiatives include a five-year cap on base electric rates at current levels and various customer service and incentive pricing programs designed to allow customers more choice and control over the services they seek and the prices they pay. These initiatives are in addition to previously implemented special discount contract rate programs for new or existing industrial customers. ComEd anticipates the initiatives will be fully implemented in 1997 and will reduce its revenues by approximately $42 million annually (including the effects of previously implemented initiatives and before income tax effects) primarily through changes in energy utilization. In March 1996, ComEd filed a request for ICC approval of the additional depreciation initiative. ComEd expects its costs to increase by $30 million in the second half of 1996 (before income tax effects) through the increase of depreciation charges on its nuclear generating units. ComEd also continues to consider the possibility of additional depreciation options. Management expects the financial impact of these initiatives will be substantially offset by ComEd's cost reduction efforts and expected growth in its business. Under ComEd's initiatives, the five-year base rate cap at current levels became effective in December 1995 and will extend until January 1, 2001. The rate cap does not affect ComEd's fuel cost or nuclear decommissioning cost recovery provisions. ComEd's fuel cost variances will continue to be collected through its fuel adjustment clause, and such collections will continue to be subject to annual reconciliation proceedings before the ICC. Likewise, nuclear decommissioning costs will continue to be collected as described in Note 1 under "Depreciation and Decommissioning." (3) AUTHORIZED SHARES AND VOTING RIGHTS OF CAPITAL STOCK. At June 30, 1996, Unicom's authorized shares consisted of 400,000,000 shares of common stock. The authorized shares of ComEd preferred and preference stocks at June 30, 1996 were: preference stock--23,214,990 shares; $1.425 convertible preferred stock-- 93,374 shares; and prior preferred stock--850,000 shares. The preference and prior preferred stocks are issuable in series and may be issued with or without mandatory redemption requirements. Holders of outstanding Unicom shares are entitled to one vote for each share held on each matter submitted to a vote of such shareholders; and holders of outstanding ComEd shares are entitled to one vote for each share held on each matter submitted to a vote of such shareholders. All such shares have the right to cumulate votes in elections for the directors of the corporation which issued the shares. 16 UNICOM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--CONTINUED (4) COMMON STOCK. At June 30, 1996, shares of Unicom common stock were reserved for the following purposes: Long-Term Incentive Plan........................................ 3,544,616 Employee Stock Purchase Plan.................................... 802,195 Employee Savings and Investment Plan............................ 85,803 Exchange for ComEd common stock not held by Unicom.............. 133,137 1996 Directors' Fee Plan........................................ 198,778 --------- 4,764,529 =========
Common stock increased during the three months, six months and twelve months ended June 30, 1995 and 1996 as follows:
THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED JUNE 30 JUNE 30 JUNE 30 ------------------- ----------------- -------------------- 1995 1996 1995 1996 1995 1996 --------- --------- -------- -------- --------- --------- Shares of Common Stock Issued: Long-Term Incentive Plan.................. -- (3,563) 182,882 (26,367) 182,882 272,502 Employee Stock Purchase Plan.................. 123,824 97,888 123,824 97,888 274,319 191,144 Employee Savings and Investment Plan....... 110,000 132,400 110,000 177,500 129,800 284,600 Exchange for ComEd com- mon stock not held by Unicom................ -- 2,433 -- 2,433 -- 2,433 1996 Directors' Fee Plan.................. -- 1,222 -- 1,222 -- 1,222 Conversion of $1.425 convertible preferred stock................. -- -- -- -- 91,935 -- Conversion of warrants. -- -- -- -- 7,522 -- --------- --------- -------- -------- --------- --------- 233,824 230,380 416,706 252,676 686,458 751,901 ========= ========= ======== ======== ========= ========= (THOUSANDS OF DOLLARS) Amount of Common Stock Issued: Total issued........... $ 5,587 $ 5,871 $ 9,745 $ 6,482 $ 16,346 $ 22,149 Held by trustee for Unicom Stock Bonus De- ferral Plan........... -- (32) -- (4,235) -- (4,235) Other.................. 5 15 21 40 (124) 114 --------- --------- -------- -------- --------- --------- $ 5,592 $ 5,854 $ 9,766 $ 2,287 $ 16,222 $ 18,028 ========= ========= ======== ======== ========= =========
At December 31, 1995 and June 30, 1996, 82,742 and 81,353 ComEd common stock purchase warrants, respectively, were outstanding. The warrants entitle the holders to convert such warrants into common stock of ComEd at a conversion rate of one share of common stock for three warrants. (5) COMED PREFERRED AND PREFERENCE STOCKS WITHOUT MANDATORY REDEMPTION REQUIREMENTS. During the twelve months ended June 30, 1995, 3,000,000 shares of ComEd preference stock without mandatory redemption requirements were issued and no shares of ComEd preferred or preference stocks without mandatory redemption requirements were redeemed. No shares of ComEd preferred or preference stocks without mandatory redemption requirements were issued or redeemed during the twelve months ended June 30, 1996. The series of ComEd preference stock without mandatory redemption requirements outstanding at June 30, 1996 are summarized as follows:
INVOLUNTARY SHARES AGGREGATE REDEMPTION LIQUIDATION SERIES OUTSTANDING STATED VALUE PRICE(1) PRICE(1) ------ ----------- ------------ ---------- ----------- (THOUSANDS OF DOLLARS) $1.90 4,249,549 $106,239 $ 25.25 $25.00 $2.00 2,000,000 51,560 $ 26.04 $25.00 $1.96 2,000,000 52,440 $ 27.11 $25.00 $7.24 750,000 74,340 $101.00 $99.12 $8.40 750,000 74,175 $101.00 $98.90 $8.38 750,000 73,566 $100.16 $98.09 $2.425 3,000,000 72,637 $ 25.00 $25.00 ---------- -------- 13,499,549 $504,957 ========== ========
-------- (1) Per share plus accrued and unpaid dividends, if any. 17 UNICOM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--CONTINUED The outstanding shares of ComEd's $1.425 convertible preferred stock are convertible at the option of the holders thereof, at any time, into common stock of ComEd at the rate of 1.02 shares of common stock for each share of convertible preferred stock, subject to future adjustment. The convertible preferred stock may be redeemed by ComEd at $42 per share, plus accrued and unpaid dividends, if any. The involuntary liquidation price of the $1.425 convertible preferred stock is $31.80 per share, plus accrued and unpaid dividends, if any. (6) COMED PREFERENCE STOCK SUBJECT TO MANDATORY REDEMPTION REQUIREMENTS. During the twelve months ended June 30, 1995 and 1996, no shares of ComEd preference stock subject to mandatory redemption requirements were issued. The series of ComEd preference stock subject to mandatory redemption requirements outstanding at June 30, 1996 are summarized as follows:
SHARES AGGREGATE SERIES OUTSTANDING STATED VALUE OPTIONAL REDEMPTION PRICE(1) - -------------- ----------- ------------ -------------------------------------------------- (THOUSANDS OF DOLLARS) $8.20 249,990 $ 24,999 $103 through October 31, 1997; and $101 thereafter $8.40 Series B 330,000 32,778 $101 $8.85 300,000 30,000 $103 through July 31, 1998; and $101 thereafter $9.25 675,000 67,500 $103 through July 31, 1999; and $101 thereafter $9.00 650,000 64,431 Non-callable $6.875 700,000 69,475 Non-callable --------- -------- 2,904,990 $289,183 ========= ========
- -------- (1) Per share plus accrued and unpaid dividends, if any. The annual sinking fund requirements and sinking fund and involuntary liquidation prices per share of the outstanding series of ComEd preference stock subject to mandatory redemption requirements are summarized as follows:
SINKING ANNUAL SINKING FUND INVOLUNTARY SERIES FUND REQUIREMENT PRICE(1) LIQUIDATION PRICE(1) - -------------- ----------------- ------- ------------------- $8.20 35,715 shares $100 $100.00 $8.40 Series B 30,000 shares(2) $100 $ 99.326 $8.85 37,500 shares $100 $100.00 $9.25 75,000 shares $100 $100.00 $9.00 130,000 shares(2) $100 $ 99.125 $6.875 (3) $100 $ 99.25
- -------- (1) Per share plus accrued and unpaid dividends, if any. (2) ComEd has a non-cumulative option to increase the annual sinking fund payment on each sinking fund redemption date to retire an additional number of shares, not in excess of the sinking fund requirement, at the applicable redemption price. (3) All shares are required to be redeemed on May 1, 2000. Annual remaining sinking fund requirements through 2000 on ComEd preference stock outstanding at June 30, 1996 will aggregate $41 million in 1996, $31 million in each of 1997-99 and $88 million in 2000. During the twelve months ended June 30, 1995 and 1996, 178,215 shares of ComEd preference stock subject to mandatory redemption requirements were reacquired to meet sinking fund requirements. Sinking fund requirements due within one year, including the optional sinking fund payment of an additional 130,000 shares of the $9.00 Series of preference stock, are included in current liabilities. (7) COMED-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF COMED FINANCING I. In September 1995, ComEd Financing I (Trust), a wholly-owned subsidiary trust of ComEd, issued 8,000,000 of its 8.48% ComEd-obligated mandatorily redeemable preferred securities. The sole asset of the Trust is $206.2 million principal amount of ComEd's 8.48% subordinated deferrable interest notes 18 UNICOM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--CONTINUED due September 30, 2035. There is a full and unconditional guarantee by ComEd of the Trust's obligations under the securities issued by the Trust. However, ComEd's obligations are subordinate and junior in right of payment to certain other indebtedness of ComEd. ComEd has the right to defer payments of interest on the subordinated deferrable interest notes by extending the interest payment period, at any time, for up to 20 consecutive quarters. If interest payments on the subordinated deferrable interest notes are so deferred, distributions on the preferred securities will also be deferred. During any deferral, distributions will continue to accrue with interest thereon. In addition, during any such deferral, ComEd may not declare or pay any dividend or other distribution on, or redeem or purchase, any of its capital stock. The subordinated deferrable interest notes are redeemable by ComEd (in whole or in part) from time to time, on or after September 30, 2000, or at any time in the event of certain income tax circumstances. If the subordinated deferrable interest notes are redeemed, the Trust must redeem preferred securities having an aggregate liquidation amount equal to the aggregate principal amount of the subordinated deferrable interest notes so redeemed. In the event of the dissolution, winding up or termination of the Trust, the holders of the preferred securities will be entitled to receive, for each preferred security, a liquidation amount of $25 plus accrued and unpaid distributions thereon (including interest thereon) to the date of payment, unless in connection with the dissolution, the subordinated deferrable interest notes are distributed to the holders of the preferred securities. (8) LONG-TERM DEBT. Sinking fund requirements and scheduled maturities remaining through 2000 for ComEd's first mortgage bonds, sinking fund debentures and other long-term debt outstanding at June 30, 1996, after deducting a deposit made for retirement of sinking fund debentures and sinking fund debentures reacquired for satisfaction of future sinking fund requirements, are summarized as follows: 1996--$166 million; 1997--$686 million; 1998--$347 million; 1999--$150 million; and 2000--$462 million. Unicom Enterprises' note payable to bank of $75 million will mature in 1998. At June 30, 1996, ComEd's outstanding first mortgage bonds maturing through 2000 were as follows:
PRINCIPAL AMOUNT SERIES ---------------------- (THOUSANDS OF DOLLARS) 5 3/4% due November 1, 1996........................ $ 50,000 5 3/4% due December 1, 1996........................ 50,000 7% due February 1, 1997............................ 150,000 5 3/8% due April 1, 1997........................... 50,000 6 1/4% due October 1, 1997......................... 60,000 6 1/4% due February 1, 1998........................ 50,000 6% due March 15, 1998.............................. 130,000 6 3/4% due July 1, 1998............................ 50,000 6 3/8% due October 1, 1998......................... 75,000 9 3/8% due February 15, 2000....................... 125,000 6 1/2% due April 15, 2000.......................... 230,000 6 3/8% due July 15, 2000........................... 100,000 ---------- $1,120,000 ==========
19 UNICOM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--CONTINUED Other long-term debt outstanding at June 30, 1996 is summarized as follows:
PRINCIPAL DEBT SECURITY AMOUNT INTEREST RATE - -------------------------------- ---------- -------------------------------------------------- (THOUSANDS OF DOLLARS) Unicom-- Loans Payable: Loan due January 1, 2003 $ 9,152 Interest rate of 8.31% Loan due January 1, 2004 9,749 Interest rate of 8.44% ---------- $ 18,901 ---------- ComEd-- Notes: Medium Term Notes, Series 1N due various dates through April 1, 1998 $ 35,500 Interest rates ranging from 9.52% to 9.65% Medium Term Note, Series 2N due July 1, 1996 10,000 Interest rate of 9.85% Medium Term Notes, Series 3N due various dates through October 15, 2004 322,250 Interest rates ranging from 8.92% to 9.20% Medium Term Notes, Series 4N due various dates through May 15, 1997 46,000 Interest rates ranging from 8.11% to 8.875% Notes due February 15, 1997 150,000 Interest rate of 7.00% Notes due July 15, 1997 100,000 Interest rate of 6.50% Notes due October 15, 2005 235,000 Interest rate of 6.40% ---------- $ 898,750 ---------- Long-Term Note Payable to Bank: Note due June 1, 1997 $ 150,000 Prevailing interest rate of 6.10% at June 30, 1996 ---------- Purchase Contract Obligations: Woodstock due January 2, 1997 $ 95 Interest rate of 4.50% Hinsdale due April 30, 2005 432 Interest rate of 3.00% ---------- $ 527 ---------- Total ComEd $1,049,277 ---------- Unicom Enterprises-- Note Payable to Bank: Note due November 22, 1998 $ 75,000 Prevailing interest rate of 6.40% at June 30, 1996 ---------- Total Unicom $1,143,178 ==========
Long-term debt maturing within one year has been included in current liabilities. ComEd's outstanding first mortgage bonds are secured by a lien on substantially all property and franchises, other than expressly excepted property, owned by ComEd. ComEd recorded an extraordinary loss of $33 million in the fourth quarter of 1995 related to the early redemption of $645 million of long-term debt which reduced net income by $20 million (after reflecting income tax effects of $13 million) or $0.09 per common share. In June 1996, ComEd placed in escrow with a trustee sufficient funds to redeem pollution control obligations amounting to $50 million on July 1, 1996, $50 million on July 15, 1996 and $99 million on August 15, 1996, effecting the extinguishment of such bonds. At June 30, 1996, $199 million outstanding principal amount of such bonds was not reflected on the Consolidated Balance Sheets. 20 UNICOM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--CONTINUED (9) LINES OF CREDIT. ComEd had total bank lines of credit of $923 million and unused bank lines of credit of $915 million at June 30, 1996. Of that amount, $915 million (of which $175 million expires on September 30, 1996, $72 million expires in equal quarterly installments commencing on December 31, 1996 and ending on September 30, 1998 and $668 million expires in equal quarterly installments commencing on December 31, 1997 and ending on September 30, 1999) may be borrowed on secured or unsecured notes of ComEd at various interest rates. The interest rate is set at the time of a borrowing and is based on several floating rate bank indices plus a spread which is dependent upon ComEd's credit ratings, or on a prime interest rate. Amounts under the remaining lines of credit may be borrowed at prevailing prime interest rates on unsecured notes of ComEd. Collateral, if required for the borrowings, would consist of first mortgage bonds issued under and in accordance with the provisions of ComEd's mortgage. ComEd is obligated to pay commitment fees with respect to $915 million of such lines of credit. Unicom Enterprises has a $200 million credit facility which will expire in 1998, of which $125 million was unused as of June 30, 1996. The credit facility can be used by Unicom Enterprises to finance investments in unregulated energy- related businesses and projects, including Unicom Thermal, and for general corporate purposes. The credit facility is guaranteed by Unicom and includes certain covenants with respect to Unicom's and Unicom Enterprises' operations. Such covenants include, among other things, (i) a requirement that Unicom and its consolidated subsidiaries maintain a tangible net worth at least $10 million over that of ComEd and its consolidated subsidiaries, (ii) a requirement that Unicom's consolidated debt to consolidated capitalization not exceed 0.65 to 1, (iii) restrictions on the indebtedness for borrowed money that Unicom (excluding ComEd) and Unicom Enterprises may incur, and (iv) a requirement that Unicom own 100% of the outstanding stock of Unicom Enterprises and at least 80% of the outstanding stock of ComEd; and provide that Unicom may not declare or pay dividends during the continuance of an event of default. Interest rates for borrowings under the credit facility are set at the time of a borrowing and are based on either a prime interest rate or a floating rate bank index plus a spread which varies with the credit rating of ComEd's outstanding first mortgage bonds. (10) DISPOSAL OF SPENT NUCLEAR FUEL. Under the Nuclear Waste Policy Act of 1982, the DOE is responsible for the selection and development of repositories for, and the disposal of, spent nuclear fuel and high-level radioactive waste. ComEd, as required by that Act, has signed a contract with the DOE to provide for the disposal of spent nuclear fuel and high-level radioactive waste from ComEd's nuclear generating stations beginning not later than January 1998; however, this delivery schedule is expected to be delayed significantly. The contract with the DOE requires ComEd to pay the DOE a one-time fee applicable to nuclear generation through April 6, 1983 of approximately $277 million, with interest to date of payment, and a fee payable quarterly equal to one mill per kilowatthour of nuclear-generated and sold electricity after April 6, 1983. As provided for under the contract, ComEd has elected to pay the one-time fee, with interest, just prior to the first delivery of spent nuclear fuel to the DOE. The liability for the one-time fee and the related interest is reflected in the Consolidated Balance Sheets. (11) FAIR VALUE OF FINANCIAL INSTRUMENTS. The following methods and assumptions were used to estimate the fair value of financial instruments either held or issued and outstanding. The disclosure of such information does not purport to be a market valuation of Unicom and subsidiary companies as a whole. The impact of any realized or unrealized gains or losses related to such financial instruments on the financial position or results of operations of Unicom and subsidiary companies is primarily dependent on the treatment authorized under future ComEd ratemaking proceedings. 21 UNICOM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--CONTINUED Investments. Securities included in the nuclear decommissioning funds have been classified and accounted for as "available for sale" securities. The estimated fair value of the nuclear decommissioning funds, as determined by the trustee and based on published market data, as of December 31, 1995 and June 30, 1996 was as follows:
DECEMBER 31, 1995 JUNE 30, 1996 -------------------------------- -------------------------------- UNREALIZED UNREALIZED COST BASIS GAINS FAIR VALUE COST BASIS GAINS FAIR VALUE ---------- ---------- ---------- ---------- ---------- ---------- (THOUSANDS OF DOLLARS) Short-term investments.......... $ 40,575 $ 283 $ 40,858 $ 72,614 $ 17 $ 72,631 U.S. Government and Agency issues........ 156,745 17,636 174,381 229,910 3,188 233,098 Municipal bonds....... 496,707 34,970 531,677 377,568 13,700 391,268 Common stock.......... 348,866 107,280 456,146 456,487 130,985 587,472 Other................. 29,757 4,708 34,465 55,151 2,223 57,374 ---------- -------- ---------- ---------- -------- ---------- $1,072,650 $164,877 $1,237,527 $1,191,730 $150,113 $1,341,843 ========== ======== ========== ========== ======== ==========
At June 30, 1996, the debt securities held by the nuclear decommissioning funds had the following maturities:
COST BASIS FAIR VALUE ---------- ---------- (THOUSANDS OF DOLLARS) Within 1 year....................................... $ 72,614 $ 72,631 1 through 5 years................................... 127,473 128,165 5 through 10 years.................................. 220,177 226,615 Over 10 years....................................... 302,454 311,894
The net earnings of the nuclear decommissioning funds, which are recorded as increases to the accumulated provision for depreciation, for the three months, six months and twelve months ended June 30, 1995 and 1996 were as follows:
THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED JUNE 30 JUNE 30 JUNE 30 -------------------- ------------------------ ------------------------ 1995 1996 1995 1996 1995 1996 --------- --------- ----------- ----------- ----------- ----------- (THOUSANDS OF DOLLARS) Gross proceeds from sales of securities.... $ 799,974 $ 644,794 $ 1,418,581 $ 1,262,665 $ 1,894,920 $ 2,442,973 Less cost based on spe- cific identification... (795,785) (636,848) (1,414,439) (1,240,344) (1,893,808) (2,407,619) --------- --------- ----------- ----------- ----------- ----------- Realized gains on sales of securities.......... $ 4,189 $ 7,946 $ 4,142 $ 22,321 $ 1,112 $ 35,354 Other realized fund earnings net of expenses............... 10,997 6,861 22,330 13,582 42,550 37,545 --------- --------- ----------- ----------- ----------- ----------- Total realized net earn- ings of the funds...... $ 15,186 $ 14,807 $ 26,472 $ 35,903 $ 43,662 $ 72,899 Unrealized gains (loss- es).................... 43,911 (2,842) 91,747 (14,764) 82,252 54,332 --------- --------- ----------- ----------- ----------- ----------- Total net earnings of the funds............. $ 59,097 $ 11,965 $ 118,219 $ 21,139 $ 125,914 $ 127,231 ========= ========= =========== =========== =========== ===========
Current Assets. Cash, temporary cash investments and other cash investments, which include U.S. Government Obligations and other short-term marketable securities, and special deposits, which primarily includes cash deposited for the redemption, refund or discharge of debt securities, are stated at cost, which approximates their fair value because of the short maturity of these instruments. The securities included in these categories have been classified as "available for sale" securities. Capitalization. The estimated fair values of ComEd preferred and preference stocks, ComEd-obligated mandatorily redeemable preferred securities of the Trust and long-term debt were obtained from an independent consultant. The estimated fair values, which include the current portions of redeemable preference stock and long-term debt but exclude accrued interest and dividends, as of December 31, 1995 and June 30, 1996 were as follows: 22 UNICOM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--CONTINUED
DECEMBER 31, 1995 JUNE 30, 1996 -------------------------------- -------------------------------- UNREALIZED CARRYING UNREALIZED CARRYING (GAINS) VALUE LOSSES FAIR VALUE VALUE LOSSES FAIR VALUE ---------- ---------- ---------- ---------- ---------- ---------- (THOUSANDS OF DOLLARS) ComEd preferred and preference stocks.... $ 800,197 $ 14,769 $ 814,966 $ 797,109 $(8,974) $ 788,135 ComEd-obligated mandatorily redeemable preferred securities of the Trust................ $ 200,000 $ 6,000 $ 206,000 $ 200,000 $(9,000) $ 191,000 Long-term debt........ $6,572,853 $470,175 $7,043,028 $6,508,400 $29,022 $6,537,422
Long-term notes payable, which are not included in the above table, amounted to $212 million and $244 million at December 31, 1995 and June 30, 1996, respectively. Such notes, for which interest is paid at fixed and prevailing rates, are included in the consolidated financial statements at cost, which approximates their fair value. Current Liabilities. The carrying value of notes payable, which consists of commercial paper and bank loans maturing within one year, approximates the fair value because of the short maturity of these instruments. See "Capitalization" above for a discussion of the fair value of the current portions of long-term debt and redeemable preference stock. Other Noncurrent Liabilities. The carrying value of accrued spent nuclear fuel disposal fee and related interest represents the settlement value as of December 31, 1995 and June 30, 1996; therefore, the carrying value is equal to the fair value. (12) PENSION BENEFITS. ComEd and the Indiana Company have non-contributory defined benefit pension plans which cover all regular employees. Benefits under these plans reflect each employee's compensation, years of service and age at retirement. During 1995, these plans were amended to more closely base retirement benefits on final pay. Funding is based upon actuarially determined contributions that take into account the amount deductible for income tax purposes and the minimum contribution required under the Employee Retirement Income Security Act of 1974, as amended. The December 31, 1995 and June 30, 1996 pension liabilities and related data were estimated pending completion of the January 1, 1996 actuarial valuation. 23 UNICOM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--CONTINUED The funded status of these plans at December 31, 1995 and June 30, 1996 was as follows:
DECEMBER 31, JUNE 30, 1995 1996 ------------ ----------- (THOUSANDS OF DOLLARS) Actuarial present value of accumulated pension plan benefits: Vested benefit obligation........................ $(2,839,000) $(2,903,000) Nonvested benefit obligation..................... (251,000) (256,000) ----------- ----------- Accumulated benefit obligation................... $(3,090,000) $(3,159,000) Effect of projected future compensation levels... (304,000) (312,000) ----------- ----------- Projected benefit obligation..................... $(3,394,000) $(3,471,000) Fair value of plan assets, invested primarily in U.S. Government, government-sponsored corporation and agency securities, fixed income funds, registered investment companies, equity index funds and other equity funds...................... 3,059,000 3,100,000 ----------- ----------- Plan assets less than projected benefit obligation. $ (335,000) $ (371,000) Unrecognized prior service cost.................... (73,000) (71,000) Unrecognized transition asset...................... (142,000) (136,000) Unrecognized net loss.............................. 205,000 213,000 ----------- ----------- Accrued pension liability........................ $ (345,000) $ (365,000) =========== ===========
The assumed discount rate was 7.5% at December 31, 1995 and June 30, 1996, and the assumed annual rate of increase in future compensation levels was 4.0%. These rates were used in determining the projected benefit obligations, the accumulated benefit obligations and the vested benefit obligations. Pension costs were determined under the rules prescribed by SFAS No. 87, including the use of the projected unit credit actuarial cost method and the following actuarial assumptions for periods during 1994, 1995 and 1996:
1994 1995 1996 ----- ----- ----- Annual discount rate.......................................... 7.50% 8.00% 7.50% Annual rate of increase in future compensation levels......... 4.00% 4.00% 4.00% Annual long-term rate of return on plan assets................ 9.50% 9.75% 9.75%
The components of pension costs, portions of which were recorded as components of construction costs, for the three months, six months and twelve months ended June 30, 1995 and 1996 were as follows:
THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED JUNE 30 JUNE 30 JUNE 30 ------------------ -------------------- -------------------- 1995 1996 1995 1996 1995 1996 -------- -------- --------- --------- --------- --------- (THOUSANDS OF DOLLARS) Service cost............ $ 21,000 $ 25,000 $ 42,000 $ 50,000 $ 89,000 $ 95,000 Interest cost on pro- jected benefit obliga- tion................... 57,000 62,000 114,000 124,000 219,000 235,000 Actual return on plan assets................. (208,000) (70,000) (375,000) (140,000) (435,000) (446,000) Early retirement program cost................... -- -- -- -- 2,000 -- Net amortization and de- ferral................. 145,000 (7,000) 249,000 (14,000) 177,000 155,000 -------- -------- --------- --------- --------- --------- $ 15,000 $ 10,000 $ 30,000 $ 20,000 $ 52,000 $ 39,000 ======== ======== ========= ========= ========= =========
In addition, an employee savings and investment plan is available to eligible employees of ComEd and certain of its and Unicom's subsidiaries. During the fourth quarter of 1995 (the first quarter of 1996 for bargaining unit employees of the Indiana Company), the employee savings and investment plan was amended. Under the plan, as amended, each participating employee may contribute up to 20% of such employee's base pay and the participating companies match the first 6% of such contribution equal to 100% of the first 2% of contributed base salary, 70% of the next 3% of contributed base salary 24 UNICOM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--CONTINUED and 25% of the last 1% of contributed base salary. The participating companies' contributions were $6 million and $7 million for the three months ended June 30, 1995 and 1996, respectively, $12 million and $15 million for the six months ended June 30, 1995 and 1996, respectively, and $24 million and $28 million for the twelve months ended June 30, 1995 and 1996, respectively. (13) POSTRETIREMENT BENEFITS. ComEd and the Indiana Company provide certain postretirement health care, dental care, vision care and life insurance for retirees and their dependents and for the surviving dependents of eligible employees and retirees. The employees become eligible for postretirement benefits when they reach age 55 with 10 years of service. The liability for postretirement benefits is funded through trust funds based upon actuarially determined contributions that take into account the amount deductible for income tax purposes. The postretirement health care plan for ComEd and the Indiana Company was amended, effective April 1, 1995. Prior to that date, the postretirement health care plan was fully funded by the companies. With respect to employees who retire on or after April 1, 1995, the plan is contributory, funded jointly by the companies and the participating employees. The December 31, 1995 and June 30, 1996 postretirement benefit liabilities and related data were estimated pending completion of the January 1, 1996 actuarial valuation. Postretirement health care costs for the twelve months ended June 30, 1996 included $26 million related to a voluntary separation offer for union employees who accepted and left ComEd's employ combined with separation offers to selected groups of non-union employees. The funded status of the plan at December 31, 1995 and June 30, 1996 was as follows:
DECEMBER 31, JUNE 30, 1995 1996 ------------ --------- (THOUSANDS OF DOLLARS) Actuarial present value of accumulated postretirement benefit obligation: Retirees.............................................. $(474,000) $(491,000) Active fully eligible participants.................... (28,000) (29,000) Other participants.................................... (457,000) (473,000) --------- --------- Accumulated benefit obligation........................ $(959,000) $(993,000) Fair value of plan assets, invested primarily in S&P 500 common stocks, registered investment companies and U.S. Government, government agency, municipal and listed corporate obligations.......................... 603,000 621,000 --------- --------- Plan assets less than accumulated postretirement bene- fit obligation........................................ $(356,000) $(372,000) Unrecognized transition obligation..................... 392,000 381,000 Unrecognized prior service cost........................ 29,000 29,000 Unrecognized net gain.................................. (280,000) (282,000) --------- --------- Accrued liability for postretirement benefits.......... $(215,000) $(244,000) ========= =========
Different health care cost trends are used for pre-Medicare and post-Medicare medical expenses. The pre-Medicare trend rate was 9.5% at December 31, 1995, grading down in 0.5% annual increments and leveling off at 5.0%. The post- Medicare trend rate was 7.5% at December 31, 1995, grading down in 0.5% annual increments to 5.0%. The assumed discount rate was 7.5%. These rates were used to determine the accumulated benefit obligations. The effect of a 1% increase in the health care cost trend rate for each future year would increase the accumulated postretirement health care obligations by approximately $160 million. 25 UNICOM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--CONTINUED The components of postretirement health care costs, portions of which were recorded as components of construction costs, for the three months, six months and twelve months ended June 30, 1995 and 1996 were as follows:
THREE MONTHS TWELVE MONTHS ENDED SIX MONTHS ENDED ENDED JUNE 30 JUNE 30 JUNE 30 ----------------- ------------------ ------------------ 1995 1996 1995 1996 1995 1996 -------- ------- -------- -------- -------- -------- (THOUSANDS OF DOLLARS) Service cost............ $ 11,000 $ 7,000 $ 22,000 $ 15,000 $ 45,000 $ 24,000 Interest cost on accumulated benefit obligation............. 22,000 18,000 43,000 35,000 83,000 61,000 Actual return on plan assets................. (40,000) (12,000) (75,000) (36,000) (85,000) (98,000) Amortization of transi- tion obligation........ 7,000 5,000 14,000 11,000 29,000 20,000 Severance plan cost..... -- 1,000 -- 1,000 -- 26,000 Other................... 28,000 (3,000) 52,000 4,000 42,000 35,000 -------- ------- -------- -------- -------- -------- $ 28,000 $16,000 $ 56,000 $ 30,000 $114,000 $ 68,000 ======== ======= ======== ======== ======== ========
Postretirement benefit costs were determined under the rules prescribed by SFAS No. 106, including the use of the projected unit credit actuarial cost method. The discount rates used were 7.5%, 8.0% and 7.5%, respectively, for 1994, 1995 and 1996 periods and the estimated long-term rate of return of fund assets, net of income tax effects, were 9.04%, 9.32% and 9.38%, respectively, for 1994, 1995 and 1996 periods. Pre-Medicare health care cost trend rates were 14% for 1994 periods, grading down in 0.5% annual increments to 5.0%. Post- Medicare health care cost trend rates were 11.5% for 1994 periods, grading down in 0.5% annual increments to 5.0%. Pre-Medicare trend rates were 13.5% for the first three months of 1995 and 10% for the remainder of the year, grading down in 0.5% annual increments to 5.0%. Post-Medicare trend rates were 11% for the first three months of 1995 and 8% for the remainder of the year, grading down in 0.5% annual increments to 5.0%. The effect of a 1% increase in the health care cost trend rate for each future year would increase the aggregate of the service and interest cost components of postretirement benefit costs by approximately $20 million for the twelve months ended June 30, 1996. (14) SEPARATION PLAN COSTS. Operation and maintenance expenses included $99 million for the twelve months ended June 30, 1996 related to a voluntary separation offer for union employees who accepted and left ComEd's employ combined with separation plans offered to selected groups of non-union employees. These employee separation plans reduced net income by $60 million or $0.28 per common share for the twelve months ended June 30, 1996. Substantially all of the costs of the voluntary separation plans were recorded in 1995. (15) INCOME TAXES. The components of the net deferred income tax liability at December 31, 1995 and June 30, 1996 were as follows:
DECEMBER 31, JUNE 30, 1995 1996 ------------ ---------- (THOUSANDS OF DOLLARS) Deferred income tax liabilities: Accelerated cost recovery and liberalized deprecia- tion, net of removal costs.......................... $3,379,987 $3,439,412 Overheads capitalized................................ 252,910 243,805 Repair allowance..................................... 219,585 214,326 Regulatory assets recoverable through future rates... 1,689,832 1,669,018 Deferred income tax assets: Postretirement benefits.............................. (235,360) (255,133) Unbilled revenues.................................... (116,274) (122,457) Alternative minimum tax.............................. (145,019) (133,600) Unamortized investment tax credits to be settled through future rates................................ (452,210) (442,795) Other regulatory liabilities to be settled through future rates........................................ (148,792) (154,183) Other--net........................................... (46,607) (46,371) ---------- ---------- Net deferred income tax liability..................... $4,398,052 $4,412,022 ========== ==========
26 UNICOM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--CONTINUED The $14 million increase in the net deferred income tax liability from December 31, 1995 to June 30, 1996 is comprised of a $59 million increase in deferred income tax expense, a $28 million decrease in the deferred income tax balance for AMT (before reflecting utilizations) and a $17 million decrease in regulatory assets net of regulatory liabilities pertaining to income taxes for the period. The amount of regulatory assets included in deferred income tax liabilities primarily relates to the equity component of AFUDC which is recorded on an after-tax basis, the borrowed funds component of AFUDC which was previously recorded net of tax and other temporary differences for which the related tax effects were not previously recorded. The amount of other regulatory liabilities included in deferred income tax assets primarily relates to deferred income taxes provided at rates in excess of the current statutory rate. The components of net income tax expense charged to continuing operations for the three months, six months and twelve months ended June 30, 1995 and 1996 were as follows:
THREE MONTHS TWELVE MONTHS ENDED SIX MONTHS ENDED ENDED JUNE 30 JUNE 30 JUNE 30 ---------------- ------------------ ------------------ 1995 1996 1995 1996 1995 1996 ------- ------- -------- -------- -------- -------- (THOUSANDS OF DOLLARS) Operating income: Current income taxes... $64,137 $51,383 $129,118 $138,725 $228,809 $349,596 Deferred income taxes.. 30,644 32,710 47,444 56,840 219,633 195,925 Investment tax credits deferred--net......... (7,179) (7,165) (14,358) (14,332) (28,690) (28,685) Other (income) and de- ductions............... (299) (913) (526) (5,038) (2,185) (12,171) ------- ------- -------- -------- -------- -------- Net income taxes charged to continuing opera- tions.................. $87,303 $76,015 $161,678 $176,195 $417,567 $504,665 ======= ======= ======== ======== ======== ========
Provisions for current and deferred federal and state income taxes and amortization of investment tax credits resulted in the following effective income tax rates for the three months, six months and twelve months ended June 30, 1995 and 1996:
THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED JUNE 30 JUNE 30 JUNE 30 ------------------ ------------------ ---------------------- 1995 1996 1995 1996 1995 1996 -------- -------- -------- -------- ---------- ---------- (THOUSANDS OF DOLLARS) Net income before extraordinary item.............. $108,866 $100,313 $197,467 $237,245 $ 539,720 $ 699,311 Net income taxes charged to continuing operations. 87,303 76,015 161,678 176,195 417,567 504,665 Provision for dividends on ComEd preferred and preference stocks................................ 16,865 16,472 33,773 32,986 67,673 69,172 -------- -------- -------- -------- ---------- ---------- Pre-tax income before provision for dividends..... $213,034 $192,800 $392,918 $446,426 $1,024,960 $1,273,148 ======== ======== ======== ======== ========== ========== Effective income tax rate......................... 41.0% 39.4% 41.1% 39.5% 40.7% 39.6% ======== ======== ======== ======== ========== ==========
The principal differences between net income taxes charged to continuing operations and the amounts computed at the federal statutory rate of 35% for the three months, six months and twelve months ended June 30, 1995 and 1996 were as follows:
THREE MONTHS TWELVE MONTHS ENDED SIX MONTHS ENDED ENDED JUNE 30 JUNE 30 JUNE 30 ---------------- ------------------ ------------------ 1995 1996 1995 1996 1995 1996 ------- ------- -------- -------- -------- -------- (THOUSANDS OF DOLLARS) Federal income taxes computed at statutory rate................... $74,562 $67,480 $137,521 $156,249 $358,736 $445,602 Equity component of AFUDC which was ex- cluded from taxable income................. (1,322) (2,124) (2,054) (3,768) (5,625) (6,309) Amortization of invest- ment tax credits....... (7,178) (7,165) (14,358) (14,332) (28,755) (28,685) State income taxes, net of federal income tax- es..................... 12,888 10,721 23,284 24,123 57,696 66,811 Differences between book and tax accounting, primarily property- related deductions..... 7,279 6,029 15,778 11,911 28,375 11,936 Other--net.............. 1,074 1,074 1,507 2,012 7,140 15,310 ------- ------- -------- -------- -------- -------- Net income taxes charged to continuing opera- tions.................. $87,303 $76,015 $161,678 $176,195 $417,567 $504,665 ======= ======= ======== ======== ======== ========
27 UNICOM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--CONTINUED Current federal income tax liabilities which were recorded prior to 1995 included excess amounts of AMT over the regular federal income tax, which amounts were also recorded as decreases to deferred federal income taxes. The excess amounts of AMT were carried forward and portions were applied as credits against the post-1994 regular federal income tax liabilities. The remaining excess amounts of AMT can be carried forward indefinitely as credits against future periods' regular federal income tax liabilities. (16) TAXES, EXCEPT INCOME TAXES. Provisions for taxes, except income taxes, for the three months, six months and twelve months ended June 30, 1995 and 1996 were as follows:
THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED JUNE 30 JUNE 30 JUNE 30 ------------------- ----------------- ------------------- 1995 1996 1995 1996 1995 1996 --------- --------- -------- -------- --------- --------- (THOUSANDS OF DOLLARS) Illinois public utility revenue................ $ 51,763 $ 51,982 $107,941 $110,492 $ 219,416 $ 232,097 Illinois invested capi- tal.................... 26,814 26,025 54,110 52,179 108,995 104,899 Municipal utility gross receipts............... 36,861 37,823 74,906 79,401 151,422 172,253 Real estate............. 40,121 8,650 86,953 53,778 176,152 143,221 Municipal compensation.. 17,637 17,709 35,427 36,804 73,464 79,979 Other--net.............. 16,595 17,329 40,359 45,103 69,733 78,910 --------- --------- -------- -------- --------- --------- $ 189,791 $ 159,518 $399,696 $377,757 $ 799,182 $ 811,359 ========= ========= ======== ======== ========= =========
(17) LEASE OBLIGATIONS OF SUBSIDIARY COMPANIES. Under its nuclear fuel lease arrangement, ComEd may sell and lease back nuclear fuel from a lessor who may borrow an aggregate of $700 million, consisting of $300 million of commercial paper or bank borrowings and $400 million of intermediate term notes, to finance the transactions. With respect to the commercial paper/bank borrowing portion, $10 million will expire on November 23, 1997 and $290 million will expire on November 23, 1998. At June 30, 1996, ComEd's obligation to the lessor for leased nuclear fuel amounted to approximately $633 million. ComEd has agreed to make lease payments which cover the amortization of the nuclear fuel used in ComEd's reactors plus the lessor's related financing costs. ComEd has an obligation for spent nuclear fuel disposal costs of leased nuclear fuel. Future minimum rental payments, net of executory costs, at June 30, 1996 for capital leases are estimated to aggregate $719 million, including $132 million in 1996, $218 million in 1997, $154 million in 1998, $99 million in 1999, $58 million in 2000 and $58 million in 2001-2043. The estimated interest component of such rental payments aggregates $90 million. The estimated portions of obligations due within one year under capital leases of approximately $168 million and $182 million at December 31, 1995 and June 30, 1996, respectively, are included in current liabilities. Future minimum rental payments at June 30, 1996 for operating leases are estimated to aggregate $153 million, including $4 million in 1996, $10 million in 1997, $10 million in 1998, $10 million in 1999, $9 million in 2000 and $110 million in 2001-2024. (18) JOINT PLANT OWNERSHIP. ComEd has a 75% undivided ownership interest in the Quad-Cities nuclear generating station. Further, ComEd is responsible for 75% of all costs which are charged to appropriate investment, operation or maintenance accounts and provides its own financing. At June 30, 1996, for its share of ownership in the station, ComEd had an investment of $600 million in production and transmission plant in service (before reduction of $190 million for the related accumulated provision for depreciation) and $56 million in construction work in progress. (19) COMMITMENTS AND CONTINGENT LIABILITIES. Purchase commitments, principally related to construction and nuclear fuel, approximated $1,076 million at June 30, 1996, comprised of approximately $1,054 million for ComEd and the Indiana Company and approximately $22 million for Unicom Thermal. 28 UNICOM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--CONTINUED In addition, ComEd has substantial commitments for the purchase of coal. ComEd's coal costs are high compared to those of other utilities. ComEd's western coal contracts and its rail contracts for delivery of the western coal provide for the purchase of certain coal at prices substantially above currently prevailing market prices. See "Management's Discussion and Analysis of Financial Condition and Results of Operations," subcaption "Liquidity and Capital Resources," for additional information regarding ComEd's purchase commitments. ComEd is a member of NML, established to provide insurance coverage against property damage to members' nuclear generating facilities. The members are subject to a retrospective premium adjustment in the event losses exceed accumulated reserve funds. Capital has been accumulated in the reserve funds of NML to the extent that ComEd would not be liable for a retrospective premium adjustment in the event of a single incident. However, ComEd could be subject to a maximum assessment of approximately $53 million in any policy year, in the event losses exceed accumulated reserve funds. ComEd also is a member of NEIL, which provides insurance coverage against the cost of replacement power obtained during certain prolonged accidental outages of nuclear generating units and coverage for property losses in excess of $500 million occurring at nuclear stations. All companies insured with NEIL are subject to retrospective premium adjustments if losses exceed accumulated reserve funds. Capital has been accumulated in the reserve funds of NEIL to the extent that ComEd would not be liable for a retrospective premium adjustment in the event of a single incident under the replacement power coverage and the property damage coverage. However, ComEd could be subject to maximum assessments, in any policy year, of approximately $26 million and $113 million in the event losses exceed accumulated reserve funds under the replacement power and property damage coverages, respectively. The NRC's indemnity for public liability coverage under the Price-Anderson Act is supported by a mandatory industry-wide program under which owners of nuclear generating facilities could be assessed in the event of nuclear incidents. Based on the number of nuclear reactors with operating licenses, ComEd would currently be subject to a maximum assessment of $991 million in the event of an incident, limited to a maximum of $125 million in any calendar year. In addition, ComEd participates in the American Nuclear Insurers and Mutual Atomic Energy Liability Underwriters Master Worker Program which provides coverage for worker tort claims filed for bodily injury caused by the nuclear energy hazard. The coverage applies to workers whose "nuclear related employment" began after January 1, 1988. ComEd would currently be subject to a maximum assessment of approximately $36 million in the event losses exceed accumulated reserve funds. During 1989 and 1991, actions were brought in federal and state courts in Colorado against ComEd and Cotter seeking unspecified damages and injunctive relief based on allegations that Cotter has permitted radioactive and other hazardous material to be released from its mill into areas owned or occupied by the plaintiffs resulting in property damage and potential adverse health effects. In February 1994, a federal jury returned nominal dollar verdicts on eight bellwether plaintiffs' claims in these cases, which verdicts were upheld on appeal. The remaining claims in the 1989 actions are the subject of a settlement agreement entered into by counsel for the plaintiffs and Cotter. If the settlement agreement is implemented, the 1989 actions will be dismissed. Although the remaining cases will necessarily involve the resolution of numerous contested issues of fact and law, Unicom and ComEd's determination is that these actions will not have a material impact on their financial position or results of operations. ComEd is involved in administrative and legal proceedings concerning air quality, water quality and other matters. The outcome of these proceedings may require increases in future construction expenditures and operating expenses and changes in operating procedures. ComEd and its subsidiaries 29 UNICOM CORPORATION AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--CONCLUDED are or are likely to become parties to proceedings initiated by the U.S. EPA, state agencies and/or other responsible parties under CERCLA with respect to a number of sites, including MGP sites, or may voluntarily undertake to investigate and remediate sites for which they may be liable under CERCLA. ComEd generally did not operate MGPs as a corporate entity but did, however, acquire MGP sites as part of the absorption of smaller utilities and as vacant real estate on which ComEd facilities have been constructed. To date, ComEd has identified 44 former MGP sites for which it may be liable for remediation. ComEd presently estimates that its costs of former MGP site investigation and remediation will aggregate from $25 million to $150 million in current-year (1996) dollars. It is expected that the costs associated with investigation and remediation of former MGP sites will be incurred over a period of approximately 20 to 30 years. Because ComEd is not able to determine the most probable liability for such MGP costs, in accordance with accounting standards, a reserve of approximately $25 million has been included on the Consolidated Balance Sheets as of December 31, 1995 and June 30, 1996, which reflects the low end of the range of ComEd's estimate of the liability associated with former MGP sites. In addition, as of December 31, 1995 and June 30, 1996, a reserve of $8 million has been included on the Consolidated Balance Sheets, representing ComEd's estimate of the liability associated with cleanup costs of remediation sites other than former MGP sites. Approximately half of this reserve relates to anticipated cleanup costs associated with a property formerly used as a tannery which was purchased by ComEd in 1973. Unicom and ComEd presently estimate that ComEd's costs of investigating and remediating the former MGP and other remediation sites pursuant to CERCLA and state environmental laws will not have a material impact on the financial position or results of operations of Unicom or ComEd. These cost estimates are based on currently available information regarding the responsible parties likely to share in the costs of responding to site contamination, the extent of contamination at sites for which the investigation has not yet been completed and the cleanup levels to which sites are expected to have to be remediated. 30 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CHANGES IN THE ELECTRIC UTILITY INDUSTRY Unicom and its predominant business, electric energy generation, transmission and distribution, are in a period of fundamental change in the manner in which customers obtain, and energy suppliers provide, energy services. These changes are attributable to changes in technology, the relaxation of regulatory barriers to utilities' respective service territories as well as to efforts to change the manner in which electric utilities are regulated. Federal law and regulations have been amended to provide for open transmission system access, and various states are considering, or have adopted, new regulatory structures to allow access by some or all customers to energy suppliers in addition to the local utility. Although Illinois has not yet adopted any fundamental regulatory changes, the legislature created a Joint Committee on Electric Utility Regulatory Reform to develop and present, no later than November 8, 1996, a legislative proposal dealing with reform of the state's Public Utilities Act. ComEd, along with other energy suppliers, energy customers and other interested parties, have been active participants in discussions related to the economic and technical issues associated with reform. In response to these developments, ComEd has implemented certain customer initiatives designed to improve and strengthen customer relationships and is undertaking an evaluation of its operations and assets, particularly generating assets, with a view toward positioning itself for market and industry changes. As discussed below, ComEd's actions to date have included a five-year base rate cap, efforts to control expenditure growth through personnel reductions, operational efficiencies and sales of generating plants. Although ComEd's operating results and financial condition have historically been affected by various rate proceedings, ComEd expects that these industry changes, and ComEd's activities anticipating or responding to them, will directly impact its operating results and financial condition over the next several years. Electric Utility Industry. The electric utility industry has historically consisted of vertically integrated companies combining generation, transmission and distribution assets; serving customers within relatively defined service territories; and operating under extensive regulation with respect to rates, operations and other matters. Utilities operated under a regulatory compact with the state, with a statutory obligation to serve all of the electricity needs within their service territory in a nondiscriminatory manner, and investment and operating decisions have been made based upon the utilities' respective assessment of those current and projected needs. In view of this obligation, regulation has focused on investment and operating costs, and rates have been based on a recovery of some or all of such prudently incurred costs plus a return on invested capital. Such rate regulation, and the ability of utilities to recover investment and other costs through rates, has provided the basis for recording certain costs as regulatory assets. These assets represent costs which are allocated over future periods reflecting related regulatory treatment, rather than expensed currently. As noted previously, the United States electric utility industry is in a process of fundamental change as state legislators and regulators re-examine their approach to regulation and its objectives and consider a transition to a competitive or market-based system of pricing for electric energy. Although the process and approach have varied from state to state in terms of the elements and timing of implementation, it is evident that the question is no longer if, but rather how and when there will be a more competitive electricity market. The Federal Energy Policy Act of 1992, among other things, empowered FERC to introduce a greater level of competition into the wholesale marketplace for electric energy. In April 1996, FERC issued its Open Access Order requiring utilities to file open access tariffs with regard to their transmission systems. These tariffs set forth the terms, including prices, under which other parties may use a utility's transmission system. ComEd has filed an open access tariff with the FERC. The Order requires the separation of the transmission operations and wholesale marketing functions so as to ensure that unaffiliated third parties have access to the same information as to system availability and other 31 requirements. The Order further requires utilities to operate an electronic bulletin board to make transmission price and access data available to all potential users. A key feature of the Order is that it contemplates full recovery of a utility's costs "stranded" by competition. These costs are "stranded" or "strandable" to the extent market based rates would be insufficient to allow for their full recovery. To recover stranded costs, the utility must show that it had a reasonable expectation that it would continue to serve the customer in question. An important element of reform proposals under consideration is the ability of other suppliers to provide energy in competition with a utility within its service territory. This element generally has included consideration of some future form of "retail wheeling," whereby a utility's transmission and distribution system is made available to alternative energy suppliers for delivery of their services to retail customers. In addition, some governmental entities, such as cities, may elect to "municipalize" a utility's distribution facilities through condemnation proceedings. Such municipalities would then be able to purchase electric power on a wholesale basis and resell it to customers over the newly acquired facilities. The FERC Open Access Order provides for the recovery of a utility's investment stranded by municipalization. While municipalization is possible under the present regulatory system, ComEd is not required to grant alternative electric suppliers access to its distribution system through any type of "retail wheeling." Presumably, under such a modified regulatory structure, customers will base energy purchase decisions on a combination of factors, including price, reliability and service. In addition to the potential effects on revenues and marketing and sales efforts, such changes can raise the question as to whether an affected utility's rates are based on cost-based regulation, allowing recovery of incurred costs, or are based on something else, i.e., the market place. Under generally accepted accounting principles, the latter determination would require the write off of regulatory assets and liabilities and would require an examination as to the recoverability in revenues of other incurred costs, with any portion determined to be unrecoverable being subject to write off. Various approaches have been proposed to deal with such strandable costs, from full recovery, as provided in the FERC Open Access Order, to no recovery, as proposed by at least some of the participants in virtually all legislative debates on regulatory reform proposals. For additional information, see "Regulatory Assets and Liabilities" in Note 1 of Notes to Financial Statements. Retail wheeling and municipalization are significant issues for electric utility companies, including ComEd, because of their potential to strand a utility's costs. Without the development of a more fully competitive market place, it is not possible to develop an estimate of strandable costs with any degree of accuracy. Any calculation of potentially strandable costs requires that a set of assumptions be made, including the timing of open access (customer choice), the extent of open access allowed, potential market prices over time, sales and load growth forecasts, operating performance over time, allowed rates over time, cost structure over time, mitigation opportunities and strandable cost recoveries. The calculation of strandable costs is extremely sensitive to the assumptions made, and the resulting estimates are potentially misleading if removed from the context in which they were calculated. At this point in time, ComEd does not subscribe to a certain set of assumptions or a particular estimate. However, ComEd believes the amount of its strandable costs could be material without allowance for recovery of costs and investments it incurred under its regulatory compact, including its duty to serve. Most reform proposals anticipating increased competition include some form of stranded cost recovery. ComEd is taking steps, such as cost-control measures and additional depreciation, to minimize its potential stranded investment. See Note 2 of Notes to Financial Statements for additional information. ComEd. ComEd is responding, and is undertaking a significant planning effort with respect to further responses, to the developments within the utility industry. During the past several years, such efforts have focused on cost reductions, including personnel reductions, efficiencies in purchasing and inventory management, and an incentive compensation system keyed to cost reduction and control. Notwithstanding the progress made at stemming the rates of increase of aggregate operating expenditures, ComEd's costs remain high in comparison to its neighboring utilities. 32 ComEd is examining its assets (particularly generating assets) with a view toward rationalizing their investment and operating costs against their ability to contribute to the revenues of ComEd under various market scenarios. Such an assessment involves the consideration of numerous factors, including revenue contribution, operating costs, impacts on ComEd's service obligations, purchase commitments and remaining assets, and the impact of various options. On April 17, 1996, ComEd announced that it had finalized agreements to sell two of its coal-fired generating stations, representing approximately 1,600 megawatts of generating capacity. Under the agreements, State Line and Kincaid stations would be sold for a total of $250 million, which approximates the book value of the stations. The net proceeds, after income tax effects, would be approximately $200 million, which would be used to retire or redeem existing debt. Under the terms of the sales, ComEd would enter into exclusive 15-year purchased power agreements for the output of the plants. The agreements are subject to regulatory approval, and proceedings have been initiated to obtain those approvals. Numerous parties have intervened in the proceedings, including various governmental and consumer groups and ComEd's principal union. The union has also filed a lawsuit in state court alleging that the labor provisions of the Kincaid agreement are violative of state law and seeking to enjoin the ICC proceedings. ComEd had previously filed an action in federal court seeking confirmation that the state law is preempted by federal labor law, and ComEd believes that the Union's allegations are without merit. The State Line and Kincaid agreements give the purchasers the right to terminate the agreements if a closing has not occurred prior to December 31, 1996. With respect to its transmission assets, ComEd is participating with approximately 20 other electric utility companies in an effort to form an ISO for the midwest United States. Under the structure currently contemplated, the ISO would set standard transmission rates and facilitate compliance with FERC's Open Access Order. In addition, while individual utility companies would continue to own their transmission lines, the ISO would oversee regional planning to avoid overloads. Creation of the ISO will be subject to further negotiations among the parties as well as federal and state regulatory approval. ComEd is also taking actions to strengthen its relationship with its customers. On December 11, 1995, ComEd instituted a five-year base rate cap for all of its customers. The base rate cap does not affect ComEd's fuel cost or nuclear decommissioning cost recovery provisions. See Note 2 of Notes to Financial Statements for additional information about ComEd's base rate cap and other initiatives intended to give customers more choice and control over the services they seek and the price they pay. LIQUIDITY AND CAPITAL RESOURCES UTILITY OPERATIONS Construction Program. ComEd and the Indiana Company have a construction program for the years 1996-98 which consists principally of improvements to their existing nuclear and other electric production, transmission and distribution facilities. It does not include funds to add new generating capacity to ComEd's system. The program, as currently approved by ComEd, calls for electric plant and equipment expenditures of approximately $2,784 million (excluding nuclear fuel expenditures of approximately $885 million). It is estimated that such construction expenditures, with cost escalation computed at 3.5% annually, will be as follows:
1996 1997 1998 TOTAL ---- ---- ---- ------ (MILLIONS OF DOLLARS) Production............................................. $451 $385 $426 $1,262 Transmission and Distribution.......................... 392 405 410 1,207 General................................................ 110 110 95 315 ---- ---- ---- ------ Total............................................... $953 $900 $931 $2,784 ==== ==== ==== ======
Such construction program includes the replacement of the steam generators at ComEd's Braidwood Unit 1 and Byron Unit 1 nuclear generating units, for service prior to year-end 1998. The estimated replacement cost is approximately $470 million, including approximately $80 million for the cost of 33 removal of the existing steam generators. Approximately $340 million of this estimated cost is included in the construction expenditures shown above. Approximately $75 million has been incurred through June 30, 1996. See "Part II. Other Information, Item 1. Legal Proceedings," subcaption "Nuclear Matters" for additional information relating to the replacement of the steam generators. ComEd's forecasts of peak load indicate a need for additional resources to meet demand, either through generating capacity or through equivalent purchased power or demand-side management resources, in 1998 and each year thereafter through the year 2000; however, it believes that adequate resources, including cost-effective demand-side management resources, non-utility generation resources and other-utility power purchases, could be obtained sufficient to meet such forecasted needs. If ComEd were to build additional capacity to meet its needs, it would need to make additional expenditures during the 1996-98 period. Purchase commitments for ComEd and the Indiana Company, principally related to construction and nuclear fuel, approximated $1,054 million at June 30, 1996. In addition, ComEd's estimated commitments for the purchase of coal are indicated in the following table.
CONTRACT PERIOD COMMITMENT(1) -------- --------- ------------- Black Butte Coal Co. ............................. 1996-2007 $919 Decker Coal Co. .................................. 1996-2015 $656 Big Horn Coal Co. ................................ 1998 $ 22 Other commitments................................. 1996-1997 $ 14
-------- (1) In millions of dollars, excluding transportation costs. No estimate of future cost escalation has been made. For additional information concerning these coal contracts and ComEd's fuel supply, see "Results of Operations" below and Notes 1 and 19 of Notes to Financial Statements. The foregoing paragraphs in this "Construction Program" section include forward-looking statements with respect to the future levels of capital expenditures which are necessarily based upon assumptions regarding estimated costs and availability of materials and services as well as contingencies. Unforeseen events or conditions may require changes in the scope of work with consequent changes in the timing and level of the projected expenditures. In addition, changes in laws and regulations, or their interpretation and enforcement, can affect the scope of certain projects, the manner in which they are undertaken and the costs associated therewith. While ComEd gives consideration to such factors in developing its budgets, such consideration cannot predict the course of future events or anticipate the interaction of multiple factors beyond management's control upon project timing and cost. Consequently, actual results could differ materially from those described. Capital Resources. ComEd forecasts that internal sources will provide more than three-fourths of the funds required for ComEd's construction program and other capital requirements, including nuclear fuel expenditures, contributions to nuclear decommissioning funds, sinking fund obligations and refinancing of scheduled debt maturities (the annual sinking fund requirements and scheduled maturities for ComEd preference stock and long-term debt are summarized in Notes 6 and 8, respectively, of Notes to Financial Statements). The forecast assumes the rate levels reflected in the Rate Order remain in effect. See "Regulation," subcaption "Rate Matters" below for additional information. The type and amount of external financing will depend on financial market conditions and the needs and capital structure of ComEd at the time of such financing. A portion of ComEd's financing is expected to be provided through the continued sale and leaseback of nuclear fuel through ComEd's existing nuclear fuel lease facility. See Note 17 of Notes to Financial Statements for more information concerning ComEd's nuclear fuel lease facility. ComEd has approximately $915 million of unused bank lines of credit at June 30, 1996 which may be borrowed at various interest rates and which may be secured or unsecured. The interest rate is set at the time of a borrowing and is based on several floating rate bank 34 indices plus a spread which is dependent upon the credit ratings of ComEd's outstanding first mortgage bonds or on a prime interest rate. Collateral, if required for the borrowings, would consist of first mortgage bonds issued under and in accordance with the provisions of ComEd's mortgage. See Note 9 of Notes to Financial Statements for information concerning lines of credit. See the Statements of Consolidated Cash Flows for the construction expenditures and cash flow from operating activities for the three months, six months and twelve months ended June 30, 1996. During the first six months of 1996, ComEd sold and leased back approximately $160 million of nuclear fuel through its existing nuclear fuel lease facility. In June 1996, ComEd issued $199 million of pollution control obligations, the proceeds of which were placed on deposit with a trustee to redeem $199 million of pollution control obligations, effecting the extinguishment of such bonds. See the Statements of Consolidated Cash Flows and Note 4 of Notes to Financial Statements for information regarding common stock activity. As of August 8, 1996, ComEd has an effective "shelf" registration statement with the SEC for the future sale of up to an additional $805 million of debt securities and cumulative preference stock for general corporate purposes of ComEd, including the discharge or refund of other outstanding securities. ComEd's securities and other securities guaranteed by ComEd are currently rated by three principal securities rating agencies as follows:
STANDARD DUFF & MOODY'S & POOR'S PHELPS ------- -------- ------ First mortgage and secured pollution control bonds........................................... Baa2 BBB BBB Publicly-held debentures and unsecured pollution control obligations............................. Baa3 BBB- BBB- Convertible preferred stock...................... baa3 BBB- BBB- Preference stock................................. baa3 BBB- BBB- ComEd-obligated mandatorily redeemable preferred securities of the Trust......................... baa3 BBB- BBB- Commercial paper................................. P-2 A-2 D-2
As of April 1996, Moody's and Standard & Poor's rating outlooks on ComEd remained stable. As of May 1996, Duff & Phelps rating outlook on ComEd remained stable. See "Part II, Item 5. Market for Registrant's Common Equity and Related Stockholder Matters" in Unicom's and ComEd's Annual Reports on Form 10-K for the year ended December 31, 1995, for additional information regarding ComEd's securities ratings. Capital Structure. ComEd's ratio of long-term debt to total capitalization has decreased to 47.0% at June 30, 1996 from 49.3% at December 31, 1995. This decrease is related primarily to the increase in current maturities of long- term debt reclassified to current liabilities. UNREGULATED OPERATIONS Unicom Enterprises is engaged, through its subsidiaries, in energy service activities which are not subject to utility regulation by state or federal agencies. Its principal subsidiary, Unicom Thermal, currently provides district cooling services to office and other buildings in the city of Chicago under a non-exclusive franchise agreement. District cooling involves, in essence, the production of chilled water at a central location(s) and its circulation to customers' buildings through a closed circuit of supply and return piping. Such water is circulated through customers' premises primarily for air conditioning. This process is used in lieu of self-generated cooling. As a result of the Clean Air Amendments, the manufacture of CFCs has been curtailed, commencing in January 1996, thereby creating an excellent marketing opportunity for non-CFC based systems, such as Unicom Thermal's district cooling. Unicom Thermal is involved in or considering district cooling projects in other cities, including a project in Boston (with Boston Edison Technologies Group, Inc.). 35 Construction Program. Unicom has approved capital expenditures for the years 1996-98 of approximately $100 million for Unicom Thermal, primarily representing the construction costs of its district cooling facilities in Chicago and its share of construction costs in Boston. Unicom Thermal's first two district cooling facilities in Chicago began serving customers in May 1995 and July 1996, respectively. Its third district cooling facility in Chicago will be completed in 1997. As of June 30, 1996, Unicom Thermal's purchase commitments, principally related to construction, were approximately $22 million. Capital Resources. Unicom expects to obtain funds to invest in its unregulated subsidiaries principally from dividends received on its ComEd common stock and from bank borrowings. While the amount of dividends on ComEd common stock is expected to be greater than the amount of dividends on Unicom common stock, the availability of such dividends is dependent on ComEd's financial performance and cash position. Other forms of financing by ComEd of Unicom or the unregulated subsidiaries, such as loans or additional equity investments (none of which is expected), would be subject to prior approval by the ICC. Unicom Enterprises has a $200 million credit facility which will expire in 1998, of which $125 million was unused as of June 30, 1996. The credit facility can be used by Unicom Enterprises to finance investments in unregulated energy- related businesses and projects, including Unicom Thermal, and for general corporate purposes. The credit facility is guaranteed by Unicom and includes certain covenants with respect to Unicom's and Unicom Enterprises' operations. Interest rates for borrowings under the credit facility are set at the time of a borrowing and are based on either a prime interest rate or a floating rate bank index plus a spread which varies with the credit rating of ComEd's outstanding first mortgage bonds. See Note 9 of Notes to Financial Statements for additional information regarding certain covenants with respect to Unicom's and Unicom Enterprises' operations. REGULATION ComEd and the Indiana Company are subject to state and federal regulation in the conduct of their respective businesses, including the operations of Cotter. Such regulation includes rates, securities issuance, nuclear operations, environmental and other matters. Particularly in the cases of nuclear operations and environmental matters, such regulation can and does affect operational and capital expenditures. Rate Matters. On January 9, 1995, the ICC issued its Rate Order in the proceedings relating to ComEd's February 1994 rate increase request. The Rate Order provided, among other things, for (i) an increase in ComEd's total revenues of approximately $301.8 million (excluding add-on revenue taxes) or 5.2%, on an annual basis, including a $303.2 million increase in base rates, (ii) the collection of municipal franchise costs on an individual municipality basis through a rider, and (iii) the use of a rider, with annual review proceedings, to pass on to ratepayers increases or decreases in estimated costs associated with the decommissioning of ComEd's nuclear generating units. See "Depreciation and Decommissioning" in Note 1 of Notes to Financial Statements for additional information related to the level of decommissioning cost collections. The ICC also determined that the Units were 100% "used and useful" and that the previously determined reasonable costs of such Units, as depreciated, should be included in full in ComEd's rate base. The rates provided in the Rate Order became effective on January 14, 1995; however, they are being collected subject to refund as a result of subsequent judicial action. As of June 30, 1996, electric operating revenues of approximately $473 million (excluding revenue taxes) are subject to refund. Intervenors and ComEd have filed appeals of the Rate Order with the Illinois Appellate Court. See Note 2 of Notes to Financial Statements for additional information. Nuclear Matters. Nuclear operations have been, and remain, an important focus of ComEd--given the impact of such operations on overall operating and maintenance expenditures and the ability of nuclear power plants to produce electric energy at a relatively low marginal cost. ComEd operates a large number of nuclear plants, ranging from the older Zion, Dresden and Quad-Cities stations to the more 36 recently completed LaSalle, Byron and Braidwood stations, and is intent upon safe, reliable and efficient operation. These plants were constructed over a period of time in which technology, construction procedures and regulatory initiatives and oversight have evolved, with the result that older plants generally require greater attention and resources to meet regulatory requirements and expectations as well as to maintain operational reliability. ComEd's management is monitoring these developments and evaluating effective alternatives for controlling anticipated expenditures as well as the benefits to be derived from accelerating certain expenditures. ComEd's Dresden station is presently on the NRC's list of plants to be monitored closely, where it has been since being placed on that list in 1992. In June 1995, the NRC reported, with respect to Dresden, that over the prior year performance was cyclical, that plant material condition needed to be improved and that a more effective work management system was needed to deal with the corrective maintenance backlog. Although the NRC has subsequently noted improvement, it has expressed concern with the sustainability of improvement and has continued its monitoring to determine if lasting change has been made. The NRC has indicated that it plans to conduct a team inspection at Dresden to assess progress in correcting performance and to sample compliance with licensing and other requirements. This inspection is presently expected to begin in the Fall of 1996. Generating station availability and performance during a year may be issues in fuel reconciliation proceedings in assessing the prudence of fuel and power purchases during such year. Final ICC orders have been issued in fuel reconciliation proceedings for years prior to 1994. Certain intervenors appealed the ICC order in the 1989 fuel reconciliation proceedings on issues relating to nuclear station performance. However, in May 1996, the Illinois Appellate Court affirmed the ICC order for the 1989 proceedings. In June 1996, these intervenors petitioned for leave to appeal to the Illinois Supreme Court. In 1996, an intervenor filed testimony in the fuel reconciliation proceeding for 1994 seeking a refund of approximately $90 million relating to nuclear station performance. See "Part II. Other Information, Item 1. Legal Proceedings," subcaption "Nuclear Matters," for additional information. ComEd estimates that it will expend approximately $15.5 billion, excluding any contingency allowance, for decommissioning costs primarily during the period from 2007 through 2032. Such costs, which are estimated to aggregate $3.7 billion in current-year (1996) dollars, are expected to be funded by external decommissioning trusts which ComEd established in compliance with Illinois law and into which ComEd has been making annual contributions. Future decommissioning cost estimates may be significantly affected by the adoption of or changes to NRC regulations as well as changes in the assumptions used in making such estimates. See Note 1 of Notes to Financial Statements under "Depreciation and Decommissioning" for additional information regarding decommissioning costs. Environmental Matters. ComEd is involved in administrative and legal proceedings concerning air quality, water quality and other matters. The outcome of these proceedings may require increases in future construction expenditures and operating expenses and changes in operating procedures. See Note 19 of Notes to Financial Statements and "Part II. Other Information, Item 1. Legal Proceedings," subcaption "Environmental Matters." RESULTS OF OPERATIONS Unicom's earnings per common share were $0.47 for the three months ended June 30, 1996 compared to $0.51 for the three months ended June 30, 1995, $1.10 for the six months ended June 30, 1996 compared to $0.92 for the six months ended June 30, 1995, and $3.16 for the twelve months ended June 30, 1996 compared to $2.52 for the twelve months ended June 30, 1995. Substantially all of the results of operations for Unicom are the results of operations for ComEd. The results of Unicom's unregulated subsidiaries are not material to the results of Unicom and subsidiary companies as a whole. As such, the following section discusses the results of operations for ComEd alone. 37 Net Income. The decrease in ComEd's earnings in the recent three-month period reflects, among other factors, lower sales to wholesale customers, partially offset by higher sales to retail customers, compared to the three-month period ended June 30, 1995. Also contributing to the lower earnings were higher operation and maintenance expenses. Partially offsetting the lower earnings was a reduction in real estate taxes which increased net income by $23 million or $0.11 per common share. Approximately $14 million or $0.07 per common share of this increase is for the year 1995 and approximately $9 million or $0.04 per common share is related to the six-month period ending June 30, 1996. The real estate tax reduction results primarily from ongoing challenges by ComEd of the methodology used by local taxing authorities to assess the value of ComEd's nuclear stations. See "Part II. Other Information, Item 1. Legal Proceedings," subcaption "Litigation", for additional information about certain property tax assessment appeals. In addition, the recent three-month period includes a decrease in the total of interest expense on debt and dividend requirements on preferred and preference stocks compared to the three-month period ended June 30, 1995. The increase in the recent six-month period reflects, among other factors, higher operating revenues as a result of higher sales to retail customers, compared to the six-month period ended June 30, 1995. Also contributing to the higher earnings for the recent six-month period was the reduction in real estate taxes discussed above. In addition, the recent six-month period includes a decrease in the total of interest expense on debt and dividend requirements on preferred and preference stocks and slightly higher operation and maintenance expenses compared to the six-month period ended June 30, 1995. The increase in the recent twelve-month period reflects, among other factors, higher operating revenues primarily due to significantly higher kilowatthour sales and the higher rate levels which became effective in January 1995 under the Rate Order. The higher kilowatthour sales reflect the unusually hot summer weather in 1995. The results for the twelve-month period ended June 30, 1996 were also affected by a decrease in the total of interest expense on debt and dividend requirements on preferred and preference stocks and higher operation and maintenance expenses. The operation and maintenance expenses reflect an after-tax charge of $60 million or $0.28 per common share for a voluntary separation offer for union employees who accepted and left ComEd's employ combined with separation plans offered to selected groups of non-union employees. Substantially all of the costs of the voluntary separation plans were recorded in 1995. ComEd also recorded an after-tax charge of $20 million or $0.09 per common share related to the early redemption of $645 million of long-term debt in 1995. Kilowatthour Sales. Kilowatthour sales to ultimate consumers for the three months, six months and twelve months ended June 30, 1996 increased 0.5%, 3.3% and 6.5%, respectively, compared to the three months, six months and twelve months ended June 30, 1995. The slight increase in the recent three-month period reflects higher kilowatthour sales to all classes of customers, except small commercial and industrial customers and public authorities, which decreased. The increase in the recent six-month period reflects higher kilowatthour sales to all classes of customers, reflecting cooler weather compared to the same period in the prior year and economic strength in the industrial sector of ComEd's service territory. The increase in the recent twelve-month period reflects higher kilowatthour sales to all classes of customers, reflecting the unusually hot summer weather in 1995 compared to the same period in 1994 and the cooler weather in the six months ended June 30, 1996 compared to the same period in the prior year. Kilowatthour sales, including sales for resale, decreased 5.0% and 0.7%, and increased 2.1% for the three months, six months and twelve months ended June 30, 1996, respectively, compared to the three months, six months and twelve months ended June 30, 1995. Operating Revenues. Operating revenues decreased slightly in the three months ended June 30, 1996 compared to the three months ended June 30, 1995, due to lower kilowatthour sales to wholesale customers, partially offset by slightly higher kilowatthour sales to retail customers. Operating revenues increased in the six months ended June 30, 1996 compared to the six months ended June 30, 1995, 38 reflecting the higher kilowatthour sales to retail customers discussed above. Operating revenues increased in the twelve months ended June 30, 1996 compared to the twelve months ended June 30, 1995, reflecting the higher kilowatthour sales discussed above and to a lesser extent, the effects of the Rate Order which became effective in January 1995. Fuel Costs. Changes in fuel expense for the three months, six months and twelve months ended June 30, 1996 compared to the same periods ended June 30, 1995 primarily resulted from changes in the average cost of fuel consumed, changes in the mix of fuel sources of electric energy generated and changes in net generation of electric energy. Fuel mix is determined primarily by system load, the costs of fuel consumed and the availability of nuclear generating units. The cost of fuel consumed, net generation of electric energy and fuel sources of kilowatthour generation were as follows:
THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED JUNE 30 JUNE 30 JUNE 30 -------------------- ------------------ -------------------- 1995 1996 1995 1996 1995 1996 --------- --------- -------- -------- --------- --------- Cost of fuel consumed (per million Btu): Nuclear..................................... $0.50 $0.54 $0.52 $0.53 $0.52 $0.53 Coal........................................ $2.52 $2.56 $2.48 $2.51 $2.36 $2.45 Oil......................................... $3.34 $3.80 $3.04 $3.27 $3.10 $3.17 Natural gas................................. $1.83 $2.87 $1.80 $2.91 $1.91 $2.22 Average all fuels........................... $0.99 $1.23 $1.02 $1.13 $1.02 $1.10 Net generation of electric energy (millions of kilowatthours)............................... 23,979 21,822 48,175 45,315 95,905 93,748 Fuel sources of kilowatthour generation: Nuclear..................................... 77% 67% 75% 71% 74% 71% Coal........................................ 21 30 23 26 23 25 Oil......................................... -- -- -- 1 1 1 Natural gas................................. 2 3 2 2 2 3 --------- --------- -------- -------- --------- --------- 100% 100% 100% 100% 100% 100% ========= ========= ======== ======== ========= =========
The decrease in nuclear generation as a percentage of total generation for the three months ended June 30, 1996 compared to the three months ended June 30, 1995 is primarily due to scheduled and non-scheduled outages at certain of ComEd's nuclear generating stations. Under the Energy Policy Act of 1992, investor-owned electric utilities that have purchased enrichment services from the DOE are being assessed amounts to fund a portion of the cost for the decontamination and decommissioning of uranium enrichment facilities owned and previously operated by the DOE. ComEd's portion of such assessments is estimated to be approximately $15 million per year (to be adjusted annually for inflation) to 2007. The Act provides that such assessments are to be treated as a cost of fuel. See Note 1 of Notes to Financial Statements under "Deferred Unrecovered Energy Costs" for information related to the accounting for such costs. Fuel Supply. Compared to other utilities, ComEd has relatively low average fuel costs as a result of its reliance predominantly on lower cost nuclear generation. ComEd's coal costs, however, are high compared to those of other utilities. ComEd's western coal contracts and its rail contracts for delivery of the western coal provide for the purchase of certain coal at prices substantially above currently prevailing market prices and ComEd has significant purchase commitments under its contracts. In addition, as of June 30, 1996, ComEd had unrecovered fuel costs in the form of coal reserves of approximately $411 million. In prior years, ComEd's commitments for the purchase of coal exceeded its requirements. Rather than take all the coal it was required to take, ComEd agreed to purchase the coal in place in the form of coal reserves. For additional information concerning ComEd's coal purchase commitments, fuel reconciliation proceedings and coal reserves, see "Liquidity and Capital Resources" above and Notes 1 and 19 of Notes to Financial Statements. Purchased Power. Amounts of purchased power are primarily affected by system load, the availability of ComEd and the Indiana Company's generating units and the availability and cost of power from other utilities. 39 The number and average cost of kilowatthours purchased were as follows:
THREE MONTHS SIX MONTHS ENDED TWELVE MONTHS ENDED ENDED JUNE 30 JUNE 30 JUNE 30 ------------- ------------------ ---------------------- 1995 1996 1995 1996 1995 1996 ------ ------ -------- -------- --------- ---------- Kilowatthours (millions)............. 239 1,376 448 2,847 896 4,874 Cost per kilowatthour... 2.70c 2.40c 2.23c 2.27c 2.71c 2.44c
Deferred Under or Overrecovered Energy Costs--Net. Operating expenses for the three months, six months and twelve months ended June 30, 1995 and 1996 include the net change in under or overrecovered allowable energy costs under ComEd's fuel adjustment clause. See "Fuel Costs" and "Fuel Supply" above and Note 1 of Notes to Financial Statements under "Deferred Unrecovered Energy Costs." Operation and Maintenance Expenses. ComEd's operation and maintenance expenses increased 4.9%, 0.7% and 8.8% for the three months, six months and twelve months ended June 30, 1996, respectively, compared to the same periods ended June 30, 1995. The increase in the current three-month period primarily reflects higher operation and maintenance expenses associated with nuclear and fossil generating stations, certain administrative and general costs and customer related activities, partially offset by lower expenses associated with pensions and other employee benefits, including postretirement health care benefits. The increase in the current six-month period primarily reflects higher operation and maintenance expenses associated with nuclear and fossil generating stations, certain administrative and general costs and customer related activities, partially offset by lower expenses associated with the transmission and distribution system and pensions and other employee benefits, including postretirement health care benefits. The increase in the current twelve-month period primarily reflects higher operation and maintenance expenses associated with nuclear and fossil generating stations, customer- related activities, voluntary employee separation plans and incentive compensation programs, partially offset by lower expenses associated with the transmission and distribution system and pensions and other employee benefits, including postretirement health care benefits. The effects of inflation are reflected in the increases and decreases discussed below and have increased operation and maintenance costs for the three months, six months and twelve months ended June 30, 1996. Operation and maintenance expenses associated with the nuclear generating stations tend to be affected by the number of outages (both scheduled and non- scheduled) of the units, during which a greater number of activities related to inspection, maintenance and improvement are scheduled and carried out. Such expenses increased $15 million, $9 million and $85 million for the three months, six months and twelve months ended June 30, 1996, respectively, compared to the same periods ended June 30, 1995. The increases in operation and maintenance expenses for the recent three-month and six-month periods reflect increased expenses related to aggressive improvement programs, which accelerate certain expenditures related to the nuclear generating plants. The increase for the current twelve-month period reflects aggressive improvement programs, which accelerate certain expenditures related to the nuclear generating plants, and activities undertaken during scheduled and non-scheduled outages. Future operation and maintenance expenses associated with nuclear generating stations may be significantly affected by regulatory, operational and other requirements. See "Nuclear Matters" under "Regulation" above and "Part II. Other Information, Item 1. Legal Proceedings," subcaption "Nuclear Matters." In March 1996, ComEd's Board of Directors authorized a program of additional expenditures related to its nuclear operations. The program consisted of various operation, maintenance and capital expenditure items. Nuclear operation and maintenance expenses are anticipated to be approximately $70 million higher than budgeted, or $50 million higher in 1996 than in 1995. The program further contemplated that ComEd's nuclear operation and maintenance expenses would be at a similarly increased level for 1997. The program also included an $89 million increase to ComEd's three-year 40 construction program. The changes were based upon a determination by ComEd's Board that it would be prudent to accelerate certain nuclear capital projects previously scheduled for later years and to implement an intensive program to make various operation and maintenance improvements in a shorter period of time than was originally planned. Operation and maintenance expenses associated with the fossil generating stations also tend to be affected by the number of outages in the same manner as nuclear generating stations. Such expenses increased $4 million, $23 million and $39 million in the three months, six months and twelve months ended June 30, 1996, respectively, compared to the same periods ended June 30, 1995. The increases in the recent three-month, six-month and twelve-month periods reflect an increase in the scope of scheduled overhauls to upgrade plant performance, partially offset by the effects of a reduction of personnel. Operation and maintenance expenses associated with ComEd's transmission and distribution system decreased $4 million and $6 million in the six months and twelve months ended June 30, 1996, respectively, compared to the same periods ended June 30, 1995. The decrease in the recent six-month and twelve-month periods reflects the effects of a reduction of personnel. Operation and maintenance expenses associated with ComEd's customer-related activities, including customer assistance and energy sales services, increased $4 million in the three-month and six-month periods ended June 30, 1996 and increased $11 million in the twelve-month period ended June 30, 1996 compared to the same periods ended June 30, 1995. The increases in the recent three-month, six-month and twelve-month periods reflect an increase for uncollectible accounts partially offset by the effects of a reduction of personnel. Operation and maintenance expenses in the twelve months ended June 30, 1996 and 1995 reflect $65 million and $50 million, respectively, for employee incentive compensation plan costs related to the achievement of certain financial performance, cost containment and operating performance goals in 1995 and 1994, respectively. Operation and maintenance expenses for pension and other employee benefits, including postretirement health care benefits, decreased $15 million, $30 million and $41 million in the three months, six months and twelve months ended June 30, 1996, respectively, compared to the same periods ended June 30, 1995. The decrease in the recent three-month period reflects a decrease of $13 million in the provision for postretirement health care benefits. The decrease in the recent six-month period reflects a decrease of $27 million in the provision for postretirement health care benefits. The decrease in the recent twelve-month period reflects a decrease of $65 million in the provision for postretirement health care benefits, partially offset by a $26 million increase for the portion of the costs of the voluntary employee separation plans related to postretirement health care benefits. See Note 14 of Notes to Financial Statements for additional information regarding the employee separation plans offered in 1995. Operation and maintenance expenses in the twelve months ended June 30, 1996 reflect $73 million for the portion of the costs of the voluntary employee separation plans not related to the postretirement health care benefits described above. See Note 14 of Notes to Financial Statements for additional information regarding the employee separation plans. Operation and maintenance expenses associated with certain administrative and general costs increased $13 million and $5 million for the three months and six months ended June 30, 1996, respectively, compared to the same periods ended June 30, 1995, due to a variety of reasons including an increase in certain labor costs partially offset by a decrease for the recent six-month period related to the provision for injuries and damages. 41 Depreciation. Depreciation expense for the three months, six months and twelve months ended June 30, 1996 increased over the same periods ended June 30, 1995 as a result of additions to plant in service. In March 1996, ComEd filed a request for ICC approval of an additional depreciation initiative. ComEd also continues to consider the possibility of additional depreciation options. See "Depreciation and Decommissioning" in Note 1 of Notes to Financial Statements and Note 2 of Notes to Financial Statements for additional information. Interest on Debt. Changes in interest on long-term debt and notes payable for the three months, six months and twelve months ended June 30, 1996 compared to the same periods ended June 30, 1995 were due to changes in average interest rates and in the amounts of long-term debt and notes payable outstanding. Changes in interest on ComEd's long-term debt also reflected new issues of debt, the retirement and early redemption of debt, and the retirement and redemption of issues which were refinanced at generally lower rates of interest. The average amounts of ComEd's long-term debt and notes payable outstanding and average interest rates thereon were as follows:
THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED JUNE 30 JUNE 30 JUNE 30 --------------------- --------------------- --------------------- 1995 1996 1995 1996 1995 1996 ---------- ---------- ---------- ---------- ---------- ---------- Long-term debt outstanding: Average amount (mil- lions)................ $7,728 $6,682 $7,780 $6,700 $7,829 $7,011 Average interest rate.. 7.79% 7.72% 7.78% 7.72% 7.80% 7.73% Notes payable outstanding: Average amount (mil- lions)................ $ 11 $ 313 $ 9 $ 301 $ 10 $ 196 Average interest rate.. 7.82% 5.71% 8.12% 5.81% 7.27% 5.91%
Decommissioning. The staff of the SEC has questioned certain of the current accounting practices of the electric utility industry, including ComEd, regarding the recognition, measurement and classification of decommissioning costs for nuclear generating stations in financial statements of electric utilities. In response to these questions, the FASB is reviewing the accounting for nuclear decommissioning costs and issued an exposure draft in February 1996 requesting written comment. If current electric utility industry accounting practices for such decommissioning costs are changed, annual provisions for decommissioning could increase and the estimated cost for decommissioning could be recorded as a liability rather than as accumulated depreciation. Unicom does not believe that such changes, if required, would have an adverse effect on the results of operations due to ComEd's ability to recover decommissioning costs through rates. Other Items. The amounts of AFUDC reflect changes in the average levels of investment subject to AFUDC and changes in the average annual capitalization rates as discussed in Note 1 of Notes to Financial Statements. AFUDC does not contribute to the current cash flow of Unicom or ComEd. ComEd's ratios of earnings to fixed charges for the twelve months ended December 31, 1995 and June 30, 1996 were 2.79 and 2.96, respectively. ComEd's ratios of earnings to fixed charges and preferred and preference stock dividend requirements for the twelve months ended December 31, 1995 and June 30, 1996 were 2.39 and 2.52, respectively. Business corporations, in general, have been adversely affected by inflation because amounts retained after the payment of all costs have been inadequate to replace, at increased costs, the productive assets consumed. Electric utilities in particular have been especially affected as a result of their capital intensive nature and regulation which limits capital recovery and prescribes installation or modification of facilities to comply with increasingly stringent safety and environmental requirements. Because the regulatory process limits the amount of depreciation expense included in ComEd's revenue allowance to the original cost of utility plant investment, the resulting cash flows are inadequate to provide for replacement of that investment in future years or preserve the purchasing power of common equity capital previously invested. 42 [THIS PAGE INTENTIONALLY LEFT BLANK] 43 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Commonwealth Edison Company: We have audited the accompanying consolidated balance sheets and statements of consolidated capitalization of Commonwealth Edison Company (an Illinois corporation) and subsidiary companies as of December 31, 1995 and June 30, 1996, and the related statements of consolidated income, retained earnings and cash flows for the three-month, six-month and twelve-month periods ended June 30, 1995 and 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Commonwealth Edison Company and subsidiary companies as of December 31, 1995 and June 30, 1996, and the results of their operations and their cash flows for the three-month, six-month and twelve-month periods ended June 30, 1995 and 1996, in conformity with generally accepted accounting principles. Arthur Andersen LLP Chicago, Illinois August 8, 1996 44 COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES STATEMENTS OF CONSOLIDATED INCOME The following Statements of Consolidated Income for the three months, six months and twelve months ended June 30, 1995 and 1996 reflect the results of past operations and are not intended as any representation as to results of operations for any future period. Future operations will necessarily be affected by various and diverse factors and developments, including changes in electric rates, population, business activity, competition, taxes, environmental control, energy use, fuel supply, cost of labor, fuel, purchased power and other matters, the nature and effect of which cannot now be determined.
THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED JUNE 30 JUNE 30 JUNE 30 ---------------------- ---------------------- ---------------------- 1995 1996 1995 1996 1995 1996 ---------- ---------- ---------- ---------- ---------- ---------- (THOUSANDS EXCEPT PER SHARE DATA) Electric Operating Revenues............... $1,559,535 $1,547,632 $3,137,671 $3,231,121 $6,458,276 $7,003,236 ---------- ---------- ---------- ---------- ---------- ---------- Electric Operating Expenses and Taxes: Fuel................... $ 254,576 $ 287,910 $ 527,432 $ 548,883 $1,051,301 $1,111,292 Purchased power........ 6,443 33,061 9,986 64,500 24,276 118,892 Deferred (under)/overrecovered energy costs--net..... 4,625 (33,353) 1,262 (10,351) 24,161 (14,346) Operation.............. 369,020 379,121 752,764 726,568 1,486,253 1,571,767 Maintenance............ 139,596 154,445 284,923 317,991 510,597 599,819 Depreciation........... 224,708 229,827 449,796 460,438 893,383 907,947 Recovery of regulatory assets................ 3,818 3,818 7,636 7,636 15,272 15,272 Taxes (except income).. 189,628 159,351 399,385 377,481 798,822 810,122 Income taxes-- Current--Federal..... 49,308 41,810 102,897 109,522 204,731 263,709 --State.............. 16,367 11,470 28,107 32,659 28,195 91,690 Deferred--Federal-- net................. 26,823 27,478 39,401 51,349 158,315 184,351 --State--net......... 3,572 5,169 8,061 5,376 61,454 12,920 Investment tax credits deferred--net......... (7,179) (7,165) (14,358) (14,332) (28,690) (28,685) ---------- ---------- ---------- ---------- ---------- ---------- $1,281,305 $1,292,942 $2,597,292 $2,677,720 $5,228,070 $5,644,750 ---------- ---------- ---------- ---------- ---------- ---------- Electric Operating Income................. $ 278,230 $ 254,690 $ 540,379 $ 553,401 $1,230,206 $1,358,486 ---------- ---------- ---------- ---------- ---------- ---------- Other Income and (Deductions): Interest on long-term debt.................. $ (150,568) $ (128,949) $ (302,765) $ (258,679) $ (610,998) $ (541,720) Interest on notes payable............... (221) (4,436) (372) (8,687) (741) (11,595) Allowance for funds used during construction-- Borrowed funds....... 3,192 6,367 4,877 11,265 13,294 17,525 Equity funds......... 3,776 6,068 5,869 10,766 16,071 18,026 Income taxes applicable to nonoperating activities............ 201 790 469 5,066 6,974 9,682 Provision for dividends on company- obligated mandatorily redeemable preferred securities of subsidiary trust...... -- (4,240) -- (8,480) -- (12,908) Miscellaneous--net..... (7,233) (10,842) (14,034) (29,313) (40,145) (59,406) ---------- ---------- ---------- ---------- ---------- ---------- $ (150,853) $ (135,242) $ (305,956) $ (278,062) $ (615,545) $ (580,396) ---------- ---------- ---------- ---------- ---------- ---------- Net Income Before Extraordinary Item..... $ 127,377 $ 119,448 $ 234,423 $ 275,339 $ 614,661 $ 778,090 Extraordinary Loss Related to Early Redemption of Long-Term Debt, Less Applicable Income Taxes........... -- -- -- -- -- (20,022) ---------- ---------- ---------- ---------- ---------- ---------- Net Income.............. $ 127,377 $ 119,448 $ 234,423 $ 275,339 $ 614,661 $ 758,068 Provision for Dividends on Preferred and Preference Stocks...... 16,865 16,472 33,773 32,986 67,673 69,172 ---------- ---------- ---------- ---------- ---------- ---------- Net Income on Common Stock.................. $ 110,512 $ 102,976 $ 200,650 $ 242,353 $ 546,988 $ 688,896 ========== ========== ========== ========== ========== ========== Average Number of Common Shares Outstanding..... 214,192 214,198 214,192 214,196 214,178 214,195 Earnings per Common Share Before Extraordinary Item..... $0.52 $0.48 $0.94 $1.13 $2.55 $3.31 Extraordinary Loss Related to Early Redemption of Long-Term Debt, Less Applicable Income Taxes........... -- -- -- -- -- (0.09) ---------- ---------- ---------- ---------- ---------- ---------- Earnings per Common Share.................. $0.52 $0.48 $0.94 $1.13 $2.55 $3.22 ========== ========== ========== ========== ========== ==========
The accompanying Notes to Financial Statements are an integral part of the above statements. 45 COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, JUNE 30, ASSETS 1995 1996 ------ ------------ ----------- (THOUSANDS OF DOLLARS) Utility Plant: Plant and equipment, at original cost (includes construction work in progress of $1,105 million and $1,172 million, respectively)................. $27,052,778 $27,553,015 Less--Accumulated provision for depreciation....... 10,565,093 10,967,396 ----------- ----------- $16,487,685 $16,585,619 Nuclear fuel, at amortized cost.................... 734,667 770,527 ----------- ----------- $17,222,352 $17,356,146 ----------- ----------- Investments: Nuclear decommissioning funds...................... $ 1,237,527 $ 1,341,843 Subsidiary companies............................... 113,657 116,969 Other investments, at cost......................... 20,478 17,956 ----------- ----------- $ 1,371,662 $ 1,476,768 ----------- ----------- Current Assets: Cash............................................... $ 972 $ 365 Temporary cash investments......................... 14,138 17,458 Special deposits................................... 3,546 565 Receivables-- Customers........................................ 579,861 563,198 Taxes............................................ 75,536 -- Other............................................ 82,824 38,875 Provisions for uncollectible accounts............ (11,828) (12,544) Coal and fuel oil, at average cost................. 129,176 166,981 Materials and supplies, at average cost............ 333,539 342,291 Deferred unrecovered energy costs.................. 46,028 98,165 Deferred income taxes related to current assets and liabilities....................................... 107,931 113,678 Prepayments and other.............................. 44,661 36,613 ----------- ----------- $ 1,406,384 $ 1,365,645 ----------- ----------- Deferred Charges and Other Noncurrent Assets: Regulatory assets.................................. $ 2,467,386 $ 2,441,489 Unrecovered energy costs........................... 588,152 501,283 Other.............................................. 63,124 53,288 ----------- ----------- $ 3,118,662 $ 2,996,060 ----------- ----------- $23,119,060 $23,194,619 =========== ===========
The accompanying Notes to Financial Statements are an integral part of the above statements. 46 COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, JUNE 30, CAPITALIZATION AND LIABILITIES 1995 1996 ------------------------------ ------------ ----------- (THOUSANDS OF DOLLARS) Capitalization (see accompanying statements): Common stock equity................................. $ 5,706,130 $ 5,777,232 Preferred and preference stocks without mandatory redemption requirements............................ 508,034 507,926 Preference stock subject to mandatory redemption re- quirements......................................... 261,475 245,609 Company-obligated mandatorily redeemable preferred securities of subsidiary trust*.................... 200,000 200,000 Long-term debt...................................... 6,488,434 5,970,266 ----------- ----------- $13,164,073 $12,701,033 ----------- ----------- Current Liabilities: Notes payable-- Commercial paper.................................. $ 261,000 $ 326,850 Bank loans........................................ 7,150 7,550 Current portion of long-term debt, redeemable pref- erence stock and capitalized lease obligations..... 433,299 912,844 Accounts payable.................................... 614,283 426,915 Accrued interest.................................... 170,284 165,232 Accrued taxes....................................... 215,965 293,898 Dividends payable................................... 102,192 106,370 Customer deposits................................... 44,521 44,796 Other............................................... 93,841 84,220 ----------- ----------- $ 1,942,535 $ 2,368,675 ----------- ----------- Deferred Credits and Other Noncurrent Liabilities: Deferred income taxes............................... $ 4,506,704 $ 4,523,887 Accumulated deferred investment tax credits......... 689,041 674,709 Accrued spent nuclear fuel disposal fee and related interest........................................... 624,191 640,519 Obligations under capital leases.................... 373,697 412,936 Regulatory liabilities.............................. 601,002 596,978 Other............................................... 1,217,817 1,275,882 ----------- ----------- $ 8,012,452 $ 8,124,911 ----------- ----------- Commitments and Contingent Liabilities (Note 19) $23,119,060 $23,194,619 =========== ===========
*As described in Note 7 of Notes to Financial Statements, the sole asset of ComEd Financing I, a subsidiary trust of ComEd, is $206.2 million principal amount of ComEd's 8.48% subordinated deferrable interest notes due September 30, 2035. The accompanying Notes to Financial Statements are an integral part of the above statements. 47 COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES STATEMENTS OF CONSOLIDATED CAPITALIZATION
DECEMBER 31, JUNE 30, 1995 1996 ------------ ----------- (THOUSANDS OF DOLLARS) Common Stock Equity: Common stock, $12.50 par value per share-- Outstanding--214,194,950 shares and 214,198,784 shares, respectively............................. $ 2,677,437 $ 2,677,485 Premium on common stock and other paid-in capital.. 2,223,004 2,223,062 Capital stock and warrant expense.................. (16,159) (16,151) Retained earnings.................................. 821,848 892,836 ----------- ----------- $ 5,706,130 $ 5,777,232 ----------- ----------- Preferred and Preference Stocks Without Mandatory Redemption Requirements: Preference stock, cumulative, without par value-- Outstanding--13,499,549 shares ................... $ 504,957 $ 504,957 $1.425 convertible preferred stock, cumulative, without par value-- Outstanding--96,753 shares and 93,374 shares, re- spectively....................................... 3,077 2,969 Prior preferred stock, cumulative, $100 par value per share-- No shares outstanding............................. -- -- ----------- ----------- $ 508,034 $ 507,926 ----------- ----------- Preference Stock Subject to Mandatory Redemption Re- quirements: Preference stock, cumulative, without par value-- Outstanding--2,934,990 shares and 2,904,990 shares, respectively............................. $ 292,163 $ 289,183 Current redemption requirements for preference stock included in current liabilities............. (30,688) (43,574) ----------- ----------- $ 261,475 $ 245,609 ----------- ----------- Company-Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trust: Outstanding--8,000,000............................. $ 200,000 $ 200,000 ----------- ----------- Long-Term Debt: First mortgage bonds: Maturing 1996 through 2000--5 1/4% to 9 3/8%..... $ 1,170,000 $ 1,120,000 Maturing 2001 through 2010--3 1/2% to 8 3/8%..... 1,465,400 1,640,400 Maturing 2011 through 2020--5.85% to 9 7/8%...... 1,266,000 1,266,000 Maturing 2021 through 2023--7 3/4% to 9 1/8%..... 1,385,000 1,385,000 ----------- ----------- $ 5,286,400 $ 5,411,400 Sinking fund debentures, due 1999 through 2011-- 2 3/4% to 7 5/8%.................................. 110,505 107,857 Pollution control obligations, due 2004 through 2014-- 3.30% to 6 7/8%............................ 317,200 142,200 Other long-term debt............................... 1,064,318 1,049,277 Deposit for retirement of long-term debt........... -- (975) Current maturities of long-term debt included in current liabilities............................... (234,893) (687,625) Unamortized net debt discount and premium.......... (55,096) (51,868) ----------- ----------- $ 6,488,434 $ 5,970,266 ----------- ----------- $13,164,073 $12,701,033 =========== ===========
The accompanying Notes to Financial Statements are an integral part of the above statements. 48 COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES STATEMENTS OF CONSOLIDATED RETAINED EARNINGS
THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED JUNE 30 JUNE 30 JUNE 30 ------------------- ------------------- ------------------- 1995 1996 1995 1996 1995 1996 --------- --------- -------- ---------- -------- ---------- (THOUSANDS OF DOLLARS) Balance at Beginning of Period................. $ 521,795 $ 875,547 $517,335 $ 821,848 $340,691 $ 546,624 Add--Net income......... 127,377 119,448 234,423 275,339 614,661 758,068 --------- --------- -------- ---------- -------- ---------- $ 649,172 $ 994,995 $751,758 $1,097,187 $955,352 $1,304,692 --------- --------- -------- ---------- -------- ---------- Deduct-- Dividends declared on-- Common stock........ $ 85,676 $ 85,680 $171,354 $ 171,358 $340,490 $ 342,713 Preferred and pref- erence stocks...... 16,844 16,450 33,752 32,964 68,137 66,066 Other capital stock transactions--net... 28 29 28 29 101 3,077 --------- --------- -------- ---------- -------- ---------- $ 102,548 $ 102,159 $205,134 $ 204,351 $408,728 $ 411,856 --------- --------- -------- ---------- -------- ---------- Balance at End of Peri- od..................... $ 546,624 $ 892,836 $546,624 $ 892,836 $546,624 $ 892,836 ========= ========= ======== ========== ======== ==========
The accompanying Notes to Financial Statements are an integral part of the above statements. 49 COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES STATEMENTS OF CONSOLIDATED CASH FLOWS
THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED JUNE 30 JUNE 30 JUNE 30 -------------------- --------------------- ------------------------ 1995 1996 1995 1996 1995 1996 --------- --------- ---------- --------- ----------- ----------- (THOUSANDS OF DOLLARS) Cash Flow from Operating Activities: Net income............. $ 127,377 $ 119,448 $ 234,423 $ 275,339 $ 614,661 $ 758,068 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and am- ortization.......... 238,116 238,191 476,728 479,065 942,394 951,021 Deferred income taxes and investment tax credits--net........ 24,162 25,996 34,444 42,204 198,096 166,057 Extraordinary loss related to early re- demption of long- term debt........... -- -- -- -- -- 33,158 Equity component of allowance for funds used during construction........ (3,776) (6,068) (5,869) (10,766) (16,071) (18,026) Revenue refunds and related interest.... 20 -- 15,135 -- (532,947) -- Recovery of regula- tory assets......... 3,818 3,818 7,636 7,636 15,272 15,272 Provisions/(payments) for liability for early retirement and separation costs-- net................. 180 2,373 560 (29,930) 2,603 30,223 Net effect on cash flows of changes in: Receivables........ (8,159) 26,181 (6,139) 136,864 (78,534) (26,208) Coal and fuel oil.. (12,802) (22,314) (24,426) (37,805) (2,271) (33,683) Materials and sup- plies............. 4,475 (7,149) 18,082 (8,752) 36,008 24,239 Accounts payable excluding nuclear fuel lease principal payments and early retirement and separation costs-- net............... 63,992 16,453 81,219 (49,359) 183,480 334,897 Accrued interest and taxes......... 6,494 23,237 89,512 72,881 120,495 (22,397) Other changes in certain current assets and liabilities....... 3,031 (17,941) 9,590 (8,670) (9,687) 8,294 Other--net........... 51,331 26,358 134,909 29,850 137,410 40,532 --------- --------- ---------- --------- ----------- ----------- $ 498,259 $ 428,583 $1,065,804 $ 898,557 $ 1,610,909 $ 2,261,447 --------- --------- ---------- --------- ----------- ----------- Cash Flow from Investing Activities: Construction expendi- tures................. $(178,948) $(237,046) $ (379,966) $(517,880) $ (721,977) $(1,037,280) Nuclear fuel expendi- tures................. (72,297) (109,184) (111,154) (143,603) (263,120) (321,567) Equity component of allowance for funds used during construction.......... 3,776 6,068 5,869 10,766 16,071 18,026 Contributions to nu- clear decommissioning funds................. -- -- (96,229) (83,178) (132,550) (119,602) Investment in subsidi- ary companies......... (1) -- (1) -- (50) (7) Other investments and special deposits...... 7,421 -- (649) (48) 805 20,207 --------- --------- ---------- --------- ----------- ----------- $(240,049) $(340,162) $ (582,130) $(733,943) $(1,100,821) $(1,440,223) --------- --------- ---------- --------- ----------- ----------- Cash Flow from Financing Activities: Issuance of securi- ties-- Long-term debt........ $ -- $ 198,902 $ -- $ 198,902 $ 269,176 $ 198,902 Preferred securities of subsidiary trust.. -- -- -- -- -- 200,000 Capital stock......... -- (2) -- (2) 72,938 (2) Retirement and redemp- tion of securities-- Long-term debt........ (262,026) (267,056) (291,663) (267,097) (639,841) (1,112,706) Capital stock......... (3,000) (3,000) (3,000) (3,000) (17,822) (17,822) Deposits and securi- ties held for retire- ment and redemption of securities......... 1,403 2,643 (271) (975) (274) (598) Premium paid on early redemption of long- term debt............. -- -- -- -- (3,664) (25,823) Cash dividends paid on capital stock......... (102,584) (106,433) (205,169) (208,625) (449,402) (417,840) Proceeds from sale/leaseback of nu- clear fuel............ -- 35,402 115,340 159,615 253,968 237,491 Nuclear fuel lease principal payments.... (52,832) (50,918) (115,617) (106,969) (225,770) (229,197) Increase in short-term borrowings............ 40,000 98,850 40,000 66,250 41,050 287,250 --------- --------- ---------- --------- ----------- ----------- $(379,039) $ (91,612) $ (460,380) $(161,901) $ (699,641) $ (880,345) --------- --------- ---------- --------- ----------- ----------- Increase (Decrease) in Cash and Temporary Cash Investments............ $(120,829) $ (3,191) $ 23,294 $ 2,713 $ (189,553) $ (59,121) Cash and Temporary Cash Investments at Beginning of Period.... 197,773 21,014 53,650 15,110 266,497 76,944 --------- --------- ---------- --------- ----------- ----------- Cash and Temporary Cash Investments at End of Period................. $ 76,944 $ 17,823 $ 76,944 $ 17,823 $ 76,944 $ 17,823 ========= ========= ========== ========= =========== ===========
The accompanying Notes to Financial Statements are an integral part of the above statements. 50 COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. See Unicom's Note 1 of Notes to Financial Statements for a discussion of significant accounting policies, except for the following specific policies discussed below. Holding Company Restructuring. Effective September 1, 1994, Unicom became the parent holding company of ComEd and Unicom Enterprises in a corporate restructuring. Previously, Unicom Enterprises was a wholly-owned subsidiary of ComEd. The restructuring was accounted for by the pooling-of-interests method. In the restructuring, each of the 214,185,572 outstanding shares of ComEd common stock, par value $12.50 per share, was converted into one fully paid and non-assessable share of Unicom common stock, without par value. In addition, the outstanding shares of the common stock of CECo Merging Corporation (a wholly-owned subsidiary of ComEd created to effect the restructuring) were converted into the same number of shares of ComEd common stock, par value $12.50 per share, outstanding immediately prior to the restructuring. The preferred and preference stocks, common stock purchase warrants, first mortgage bonds and other debt obligations of ComEd were unchanged in the restructuring and remain as ComEd's outstanding securities and obligations. Income Taxes. ComEd is included in the consolidated federal and state income tax returns filed by Unicom. Current and deferred income taxes of the consolidated group are allocated to ComEd as if ComEd filed separate tax returns. Deferred income taxes are provided for income and expense items recognized for financial accounting purposes in periods that differ from those for income tax purposes. Income taxes deferred in prior years are charged or credited to income as the book/tax timing differences reverse. Prior years' deferred investment tax credits are amortized through credits to income generally over the lives of the related property. Income tax credits resulting from interest charges applicable to nonoperating activities, principally construction, are classified as other income. Interest. Total interest costs incurred on debt, leases and other obligations were $176 million and $157 million for the three months ended June 30, 1995 and 1996, respectively, $353 million and $314 million for the six months ended June 30, 1995 and 1996, respectively, and $709 million and $654 million for the twelve months ended June 30, 1995 and 1996, respectively. Statements of Consolidated Cash Flows. For purposes of the Statements of Consolidated Cash Flows, temporary cash investments, generally investments maturing within three months at the time of purchase, are considered to be cash equivalents. Supplemental cash flow information for the three months, six months and twelve months ended June 30, 1995 and 1996 was as follows:
THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED JUNE 30 JUNE 30 JUNE 30 ------------------- ----------------- ------------------- 1995 1996 1995 1996 1995 1996 --------- --------- -------- -------- --------- --------- (THOUSANDS OF DOLLARS) Supplemental Cash Flow Information: Cash paid during the period for: Interest (net of amount capitalized). $145,011 $114,114 $316,266 $270,724 $641,806 $558,660 Income taxes (net of refunds)............ $ 52,913 $ 9,284 $ 22,492 $ 9,284 $ 95,160 $ 355,634 Supplemental Schedule of Non-Cash Investing and Financing Activities: Capital lease obliga- tions incurred........ $ 1,433 $ 36,994 $118,243 $162,486 $258,091 $ 242,820
(2) RATE MATTERS. See Unicom's Note 2 of Notes to Financial Statements. 51 COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--CONTINUED (3) AUTHORIZED SHARES AND VOTING RIGHTS OF CAPITAL STOCK. At June 30, 1996, the authorized shares of capital stock were: common stock--250,000,000 shares; preference stock--23,214,990 shares; $1.425 convertible preferred stock--93,374 shares; and prior preferred stock-- 850,000 shares. The preference and prior preferred stocks are issuable in series and may be issued with or without mandatory redemption requirements. Holders of shares at any time outstanding, regardless of class, are entitled to one vote for each share held on each matter submitted to a vote at a meeting of shareholders, with the right to cumulate votes in all elections for directors. (4) COMMON STOCK. At June 30, 1996, shares of common stock were reserved for the following purposes: Conversion of $1.425 convertible preferred stock.................. 95,241 Conversion of warrants............................................ 27,117 ------- 122,358 =======
During the three months, six months and twelve months ended June 30, 1995 and 1996, shares of common stock were issued as follows:
SIX MONTHS THREE MONTHS ENDED ENDED TWELVE MONTHS ENDED JUNE 30 JUNE 30 JUNE 30 --------------------- ------------- --------------------- 1995 1996 1995 1996 1995 1996 --------- ---------- ------ ------ ---------- ---------- Employee Savings and In- vestment Plan.......... -- -- -- -- 15,800 -- Conversion of $1.425 convertible preferred stock.................. 161 2,634 1,231 3,435 98,175 5,834 Conversion of warrants.. 86 336 216 399 8,178 482 -------- ---------- ----- ----- ---------- -------- 247 2,970 1,447 3,834 122,153 6,316 ======== ========== ===== ===== ========== ========
At December 31, 1995 and June 30, 1996, 82,742 and 81,353 common stock purchase warrants, respectively, were outstanding. The warrants entitle the holders to convert such warrants into common stock at a conversion rate of one share of common stock for three warrants. (5) PREFERRED AND PREFERENCE STOCKS WITHOUT MANDATORY REDEMPTION REQUIREMENTS. See Unicom's Note 5 of Notes to Financial Statements. (6) PREFERENCE STOCK SUBJECT TO MANDATORY REDEMPTION REQUIREMENTS. See Unicom's Note 6 of Notes to Financial Statements. (7) COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF COMED FINANCING I. See Unicom's Note 7 of Notes to Financial Statements. (8) LONG-TERM DEBT. See Unicom's Note 8 of Notes to Financial Statements. (9) LINES OF CREDIT. See the first paragraph of Unicom's Note 9 of Notes to Financial Statements. (10) DISPOSAL OF SPENT NUCLEAR FUEL. See Unicom's Note 10 of Notes to Financial Statements. (11) FAIR VALUE OF FINANCIAL INSTRUMENTS. See Unicom's Note 11 of Notes to Financial Statements. (12) PENSION BENEFITS. See Unicom's Note 12 of Notes to Financial Statements. (13) POSTRETIREMENT BENEFITS. See Unicom's Note 13 of Notes to Financial Statements. 52 COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--CONTINUED (14) SEPARATION PLAN COSTS. See Unicom's Note 14 of Notes to Financial Statements. (15) INCOME TAXES. The components of the net deferred income tax liability at December 31, 1995 and June 30, 1996 were as follows:
DECEMBER 31, JUNE 30, 1995 1996 ------------ ---------- (THOUSANDS OF DOLLARS) Deferred income tax liabilities: Accelerated cost recovery and liberalized deprecia- tion, net of removal costs.......................... $3,379,987 $3,439,412 Overheads capitalized................................ 252,910 243,805 Repair allowance..................................... 219,585 214,326 Regulatory assets recoverable through future rates... 1,689,832 1,669,018 Deferred income tax assets: Postretirement benefits.............................. (235,353) (255,121) Unbilled revenues.................................... (116,274) (122,457) Alternative minimum tax.............................. (145,019) (133,600) Unamortized investment tax credits to be settled through future rates................................ (452,210) (442,795) Other regulatory liabilities to be settled through future rates........................................ (148,792) (154,183) Other--net........................................... (45,893) (48,196) ---------- ---------- Net deferred income tax liability..................... $4,398,773 $4,410,209 ========== ==========
The $11 million increase in the net deferred income tax liability from December 31, 1995 to June 30, 1996 is comprised of a $56 million increase in deferred income tax expense, a $28 million decrease in the deferred income tax balance for AMT (before reflecting utilizations) and a $17 million decrease in regulatory assets net of regulatory liabilities pertaining to income taxes for the period. The amount of regulatory assets included in deferred income tax liabilities primarily relates to the equity component of AFUDC which is recorded on an after-tax basis, the borrowed funds component of AFUDC which was previously recorded net of tax and other temporary differences for which the related tax effects were not previously recorded. The amount of other regulatory liabilities included in deferred income tax assets primarily relates to deferred income taxes provided at rates in excess of the current statutory rate. The components of net income tax expense charged to continuing operations for the three months, six months and twelve months ended June 30, 1995 and 1996 were as follows:
THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED JUNE 30 JUNE 30 JUNE 30 -------------------- ------------------ -------------------- 1995 1996 1995 1996 1995 1996 --------- --------- -------- -------- --------- --------- (THOUSANDS OF DOLLARS) Electric operating in- come: Current income taxes... $ 65,675 $ 53,280 $131,004 $142,181 $ 232,926 $ 355,399 Deferred income taxes.. 30,395 32,647 47,462 56,725 219,769 197,271 Investment tax credits deferred--net......... (7,179) (7,165) (14,358) (14,332) (28,690) (28,685) Other (income) and de- ductions............... (299) (913) (526) (5,038) (2,322) (12,171) --------- --------- -------- -------- --------- --------- Net income taxes charged to continuing opera- tions.................. $ 88,592 $ 77,849 $163,582 $179,536 $ 421,683 $ 511,814 ========= ========= ======== ======== ========= =========
Provisions for current and deferred federal and state income taxes and amortization of investment tax credits resulted in the following effective income tax rates for the three months, six months and twelve months ended June 30, 1995 and 1996:
THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED JUNE 30 JUNE 30 JUNE 30 -------------------- ------------------ ---------------------- 1995 1996 1995 1996 1995 1996 --------- --------- -------- -------- ---------- ---------- Pre-tax book income (thousands)............ $215,969 $197,297 $398,005 $454,875 $1,036,344 $1,289,904 Effective income tax rate................... 41.0% 39.5% 41.1% 39.5% 40.7% 39.7%
53 COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--CONTINUED The principal differences between net income taxes charged to continuing operations and the amounts computed at the federal statutory rate of 35% for the three months, six months and twelve months ended June 30, 1995 and 1996 were as follows:
THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED JUNE 30 JUNE 30 JUNE 30 -------------------- ------------------ -------------------- 1995 1996 1995 1996 1995 1996 --------- --------- -------- -------- --------- --------- (THOUSANDS OF DOLLARS) Federal income taxes computed at statutory rate................... $ 75,589 $ 69,054 $139,302 $159,206 $ 362,720 $ 451,467 Equity component of AFUDC which was excluded from taxable income................. (1,322) (2,124) (2,054) (3,768) (5,625) (6,309) Amortization of invest- ment tax credits....... (7,178) (7,165) (14,358) (14,332) (28,755) (28,685) State income taxes, net of federal income tax- es..................... 12,888 10,721 23,284 24,123 57,696 66,811 Differences between book and tax accounting, primarily property-re- lated deductions....... 7,279 6,029 15,778 11,911 28,375 11,936 Other--net.............. 1,336 1,334 1,630 2,396 7,272 16,594 --------- --------- -------- -------- --------- --------- Net income taxes charged to continuing opera- tions.................. $ 88,592 $ 77,849 $163,582 $179,536 $ 421,683 $ 511,814 ========= ========= ======== ======== ========= =========
Current federal income tax liabilities which were recorded prior to 1995 included excess amounts of AMT over the regular federal income tax, which amounts were also recorded as decreases to deferred federal income taxes. The excess amounts of AMT were carried forward and portions were applied as credits against the post-1994 regular federal income tax liabilities. The remaining excess amounts of AMT can be carried forward indefinitely as credits against future periods' regular federal income tax liabilities. (16) TAXES, EXCEPT INCOME TAXES. Provisions for taxes, except income taxes, for the three months, six months and twelve months ended June 30, 1995 and 1996 were as follows:
THREE MONTHS ENDED SIX MONTHS ENDED TWELVE MONTHS ENDED JUNE 30 JUNE 30 JUNE 30 ------------------- ----------------- ------------------- 1995 1996 1995 1996 1995 1996 --------- --------- -------- -------- --------- --------- (THOUSANDS OF DOLLARS) Illinois public utility revenue................ $ 51,763 $ 51,982 $107,941 $110,492 $ 219,416 $ 232,097 Illinois invested capi- tal.................... 26,814 26,025 54,110 52,179 108,995 104,899 Municipal utility gross receipts............... 36,861 37,823 74,906 79,401 151,422 172,253 Real estate............. 40,121 8,650 86,953 53,778 176,152 142,572 Municipal compensation.. 17,637 17,709 35,427 36,804 73,464 79,979 Other--net.............. 16,432 17,162 40,048 44,827 69,373 78,322 --------- --------- -------- -------- --------- --------- $ 189,628 $ 159,351 $399,385 $377,481 $ 798,822 $ 810,122 ========= ========= ======== ======== ========= =========
(17) LEASE OBLIGATIONS. Under its nuclear fuel lease arrangement, ComEd may sell and lease back nuclear fuel from a lessor who may borrow an aggregate of $700 million, consisting of $300 million of commercial paper or bank borrowings and $400 million of intermediate term notes, to finance the transactions. With respect to the commercial paper/bank borrowing portion, $10 million will expire on November 23, 1997 and $290 million will expire on November 23, 1998. At June 30, 1996, ComEd's obligation to the lessor for leased nuclear fuel amounted to approximately $633 million. ComEd has agreed to make lease payments which cover the amortization of the nuclear fuel used in ComEd's reactors plus the lessor's related financing costs. ComEd has an obligation for spent nuclear fuel disposal costs of leased nuclear fuel. Future minimum rental payments, net of executory costs, at June 30, 1996 for capital leases are estimated to aggregate $707 million, including $132 million in 1996, $218 million in 1997, $154 million in 1998, $99 million in 1999, $58 million in 2000 and $46 million in 2001-2004. The estimated interest component of such rental payments aggregates $78 million. The estimated portions of obligations due within one year under capital leases of approximately $168 million and $182 million at December 31, 1995 and June 30, 1996, respectively, are included in current liabilities. 54 COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS--CONCLUDED Future minimum rental payments at June 30, 1996 for operating leases are estimated to aggregate $138 million, including $4 million in 1996, $10 million in 1997, $9 million in 1998, $9 million in 1999, $9 million in 2000 and $97 million in 2001-2024. (18) JOINT PLANT OWNERSHIP. See Unicom's Note 18 of Notes to Financial Statements. (19) COMMITMENTS AND CONTINGENT LIABILITIES. See Unicom's Note 19 of Notes to Financial Statements. 55 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CHANGES IN THE ELECTRIC UTILITY INDUSTRY. See Unicom's "Management's Discussion and Analysis of Financial Condition and Results of Operations," subcaption "Changes in the Electric Utility Industry," which is incorporated herein by this reference. LIQUIDITY AND CAPITAL RESOURCES. See Unicom's "Management's Discussion and Analysis of Financial Condition and Results of Operations," subcaptions "Liquidity and Capital Resources--UTILITY OPERATIONS" and "Regulation," which are incorporated herein by this reference. RESULTS OF OPERATIONS. See Unicom's "Management's Discussion and Analysis of Financial Condition and Results of Operations," subcaption "Results of Operations" (other than the first paragraph thereof), which is incorporated herein by this reference. 56 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. CERTAIN REGULATORY MATTERS. Through its fuel adjustment clause, ComEd recovers from its customers the cost of the fuel used to generate electricity and of purchased power as compared to fuel costs included in base rates. The amounts collected under the fuel adjustment clause are subject to review by the ICC, which, under the Illinois Public Utilities Act, is required to hold annual public hearings to reconcile the collected amounts with the actual cost of fuel and power prudently purchased. In the event that the collected amounts exceed such actual cost, then the ICC can order that the excess be refunded. For additional information concerning ComEd's fuel reconciliation proceedings and coal reserves, see Note 1 of Unicom and ComEd's Notes to Financial Statements. LITIGATION. During 1989 and 1991, actions were brought in federal and state courts in Colorado against ComEd and Cotter seeking unspecified damages and injunctive relief based on allegations that Cotter has permitted radioactive and other hazardous material to be released from its mill into areas owned or occupied by the plaintiffs resulting in property damage and potential adverse health effects. In February 1994, a federal jury returned nominal dollar verdicts on eight bellwether plaintiffs' claims in these cases, which verdicts were upheld on appeal. The remaining claims in the 1989 actions are the subject of a settlement agreement entered into by counsel for the plaintiffs and Cotter. If the settlement agreement is implemented, the 1989 actions will be dismissed. Although the remaining cases will necessarily involve the resolution of numerous contested issues of fact and law, Unicom and ComEd's determination is that these actions will not have a material impact on their financial position or results of operations. In 1990, ComEd filed a complaint in the Circuit Court against Westinghouse and certain of its employees. The complaint alleges that the defendants knowingly concealed information regarding the durability of the metal used in the steam generators (a major component of the nuclear steam supply systems) at ComEd's Zion, Byron and Braidwood stations. The complaint further alleges that the defects in the steam generators will prevent the plants from maintaining their full power output through their forty-year design life without costly remanufacture or replacement of the steam generators. Damages, including punitive damages, in an unspecified amount are claimed. Westinghouse has filed a counterclaim against ComEd which seeks recovery of Westinghouse's costs of defense and damages of approximately $13 million. In July 1995, the Chicago area experienced several consecutive days of unusually high temperatures coupled with high humidity. Between July 12 and 14, 1995, ComEd experienced record demand for electricity. On July 14, 1995, a fire in a substation caused a power outage to approximately 40,000 customers. Other equipment failures in the same general area caused certain of these customers to be without power for up to 48 hours. In the wake of these power outages, three class action lawsuits were filed against ComEd seeking recovery of damages for property losses allegedly suffered. One suit seeks at least $10 million in damages; the other seeks unspecified damages. One individual suit was also filed seeking damages less than $100,000 for property losses. ComEd has appeals pending in applicable counties in connection with property tax assessments for its Byron, Braidwood and LaSalle nuclear generating stations. These proceedings seek refunds and reduced valuations resulting in lower property taxes for the challenged and subsequent years. In January 1996, the PTAB rendered a decision substantially adopting ComEd's positions with respect to the Byron nuclear station. Thereafter, the Ogle County Board of Review issued a revised assessment. ComEd has received tax bills for 1995 taxes (payable in 1996) based on the revised assessment. However, certain Ogle County taxing bodies have filed legal actions challenging both the PTAB decision and the Board of Review assessment. ComEd has also challenged the assessment, on the grounds that it does not fully implement the PTAB decision. ComEd continues to challenge tax assessments with respect to other 57 properties. The reduction in ComEd's provision for real estate taxes in 1995 and 1996 reflects the bills received. NUCLEAR MATTERS. Under the Nuclear Waste Policy Act of 1982, the DOE is responsible for the selection and development of repositories for, and the disposal of, spent nuclear fuel and high-level radioactive waste. ComEd, as required by that Act, has signed a contract with the DOE to provide for the disposal of spent nuclear fuel and high-level radioactive waste from ComEd's nuclear generating stations beginning not later than January 1998; however, this delivery schedule is expected to be delayed significantly. Extended delays in spent nuclear fuel acceptance by the DOE would lead to ComEd's consideration of costly storage alternatives. The contract with the DOE requires ComEd to pay the DOE a one-time fee applicable to nuclear generation through April 6, 1983 of approximately $277 million, with interest to date of payment, and a fee payable quarterly equal to one mill per kilowatthour of nuclear-generated and sold electricity after April 6, 1983. As provided for under the contract, ComEd has elected to pay the one-time fee, with interest, just prior to the first delivery of spent nuclear fuel to the DOE. The costs incurred by the DOE for disposal activities will be paid out of fees charged to owners and generators of spent nuclear fuel and high-level radioactive waste. ComEd has primary responsibility for the interim storage of its spent nuclear fuel. ComEd's capability to store spent fuel is more than adequate for some years to come. Dresden station has spent fuel capacity through the year 2001, Zion station has capacity through 2004, Quad-Cities has capacity through 2006 and all of the other stations have capacity through at least 2008. In addition, ComEd is developing on site dry cask spent fuel storage for Dresden Unit 1 at a budgeted cost of $21 million. The Dresden Unit 1 facility will use existing technology procured to meet the federal requirements for both storage and transportation of spent nuclear fuel. Meeting other spent fuel storage requirements beyond the years stated above could require new and separate storage facilities. The costs for ComEd's other nuclear units have not been determined. The federal Low-Level Radioactive Waste Policy Act of 1980 provides that states may enter into compacts to provide for regional disposal facilities for low-level radioactive waste and restrict use of such facilities to waste generated within the region. Between July 1, 1994 and July 1, 1995, there were no commercial operating sites in the United States for the disposal of low- level radioactive waste available to ComEd. However, the Barnwell, South Carolina low-level radioactive waste site was reopened on July 1, 1995 and is available to ComEd. ComEd entered into an agreement with the Barnwell site operator and began shipping waste to Barnwell on August 17, 1995. Illinois has entered into a compact with the state of Kentucky, which has been approved by Congress as required by the Waste Policy Act. Neither Illinois nor Kentucky currently has an operational site, and one is currently not expected to be operational until after the year 2000. ComEd has temporary on-site storage capacity at its nuclear generating stations for a limited amount of low-level radioactive waste. ComEd anticipates the possibility of continuing difficulties in disposing of low-level radioactive waste. Since the reopening and availability of the Barnwell site, ComEd continues to reevaluate its options. Nuclear operations have been, and remain, an important focus of ComEd--given the impact of such operations on overall operating and maintenance expenditures and the ability of nuclear power plants to produce electric energy at a relatively low marginal cost. ComEd operates a large number of nuclear plants, ranging from the older Zion, Dresden and Quad-Cities stations to the more recently completed LaSalle, Byron and Braidwood stations, and is intent upon safe, reliable and efficient operation. These plants were constructed over a period of time in which technology, construction procedures and regulatory initiatives and oversight have evolved, with the result that older plants generally require greater attention and resources to meet regulatory requirements and expectations as well as to maintain operational reliability. ComEd's management is monitoring these developments and evaluating effective alternatives for controlling anticipated expenditures as well as the benefits to be derived from accelerating certain expenditures. 58 ComEd's Dresden station is presently on the NRC's list of plants to be monitored closely, where it has been since being placed on that list in 1992. In June 1995, the NRC reported, with respect to Dresden, that over the prior year performance was cyclical, that plant material condition needed to be improved and that a more effective work management system was needed to deal with the corrective maintenance backlog. Although the NRC has subsequently noted improvement, it has expressed concern with the sustainability of improvement and has continued its monitoring to determine if lasting change has been made. The NRC has indicated that it plans to conduct a team inspection at Dresden to assess progress in correcting performance and to sample compliance with licensing and other requirements. This inspection is presently expected to begin in the Fall of 1996. Generating station availability and performance during a year may be issues in fuel reconciliation proceedings in assessing the prudence of fuel and power purchases during such year. Final ICC orders have been issued in fuel reconciliation proceedings for years prior to 1994. Certain intervenors appealed the ICC order in the 1989 fuel reconciliation proceedings on issues relating to nuclear station performance. However, in May 1996, the Illinois Appellate Court affirmed the ICC order in the 1989 proceedings. In June 1996, these intervenors petitioned for leave to appeal to the Illinois Supreme Court. In 1996, an intervenor filed testimony in the fuel reconciliation proceeding for 1994 seeking a refund of approximately $90 million relating to nuclear station performance. In accordance with a commitment to the NRC, ComEd examined its operating boiling water nuclear generating units in 1983 to determine the existence or extent of inter-granular stress corrosion in certain of the large diameter piping in those units. Inter-granular stress corrosion was discovered in the Dresden and Quad-Cities units. ComEd replaced the stainless steel piping susceptible to stress corrosion at Dresden Unit 3. ComEd believes the remedial actions taken to minimize the impact of stress corrosion cracking on BWR stainless steel reactor coolant piping have been successfully completed on Dresden Units 2 and 3, Quad-Cities Units 1 and 2 and LaSalle County Units 1 and 2. Future work on this piping will consist of routine inspections and repairs. As a result of ComEd's experience with the effects of inter-granular stress corrosion of stainless steel materials in BWRs, an inspection, repair and mitigation program of reactor vessel internals has been implemented. This effort is intended to prevent non-budgeted costs and refueling outage extensions resulting from unanticipated repairs occurring during a refueling outage. For 1996, current estimated expenditures for mitigation systems at Dresden, LaSalle County and Quad-Cities stations are $10.5 million, $6.5 million and $7.1 million, respectively. For 1997, estimated expenditures for installation of mitigation systems for LaSalle County and Dresden stations are $1.6 million and $2.1 million, respectively. ComEd has studied the possibility of having to replace the steam generators at its Zion station. The initial studies were completed in 1991 and additional follow-up studies are continuing. Based on the most recent findings, it will not be necessary on a technical basis to replace the Zion steam generators until at least the year 2005; however, ComEd is continuing to monitor the extent of steam generator degradation and is continuing to study the timing and economics of replacement. ComEd has also studied the replacement of the steam generators at Byron Unit 1 and Braidwood Unit 1. The studies indicate that, from a technical standpoint, the steam generators should be replaced and, from an economic standpoint, the replacements should be performed at the earliest possible time. The steam generator replacements are currently planned to be completed prior to year-end 1998. The estimated replacement cost is approximately $470 million, including approximately $80 million for the cost of removal of the existing steam generators. Approximately $340 million of this estimated cost is included in the current 1996-98 construction program. See Unicom and ComEd's Current Report on Form 8-K/A-1 dated March 14, 1996 for additional information. ComEd estimates that it will expend approximately $15.5 billion, excluding any contingency allowance, for decommissioning costs primarily during the period from 2007 through 2032. Such costs, which are estimated to aggregate $3.7 billion in current-year (1996) dollars, are expected to be funded 59 by external decommissioning trusts which ComEd established in compliance with Illinois law and into which ComEd has been making annual contributions. Future decommissioning cost estimates may be significantly affected by the adoption of or changes to NRC regulations as well as changes in the assumptions used in making such estimates. See Note 1 of Notes to Financial Statements under "Depreciation and Decommissioning" for additional information regarding decommissioning costs. Since January 1, 1996, civil penalties were imposed on ComEd on six occasions for violations of NRC regulations in amounts aggregating $400,000. To ComEd's knowledge, there is one enforcement issue outstanding and under review by the NRC. ENVIRONMENTAL MATTERS. Air quality regulations, promulgated by the IPCB as well as the Indiana and Hammond Departments of Environmental Management in accordance with federal standards, impose restrictions on the emission of particulates, sulfur dioxide, nitrogen oxides and other air pollutants and require permits from the respective state and local environmental protection agencies for the operation of emission sources. Permits authorizing operation of ComEd's fossil fuel generating facilities subject to this requirement have been obtained and, where such permits are due to expire, ComEd has, in a timely manner, filed applications for renewal or requested extensions of the existing permits. Under the Federal Clean Water Act, NPDES permits for discharges into waterways are required to be obtained from the U.S. EPA or from the state environmental agency to which the permit program has been delegated. Those permits must be renewed periodically. ComEd and the Indiana Company either have NPDES permits for all of their generating stations or have pending applications for such permits under the current delegation of the program to the Illinois EPA or the Indiana Department of Environmental Management. ComEd is also subject to the jurisdiction of certain pollution control agencies of the state of Iowa with respect to the discharge into the Mississippi River from Quad- Cities station. In 1990, the Sierra Club filed suit in the U.S. District Court under Section 505 of the Federal Clean Water Act alleging violations of state of Illinois water quality standards with respect to thermal effluents at ComEd's Fisk, Crawford, Will County and Joliet generating stations. In 1991, the Sierra Club and ComEd reached a settlement of this suit which was also approved by the Court. Under the settlement, ComEd agreed to perform an ecological study of the thermal effluents discharged from the generating stations. This study, which was completed in April 1996, provides empirical evidence that the current thermal limitations for these stations are adequately protective of designated uses of the receiving waters. In May 1996, ComEd filed a petition with the IPCB for alternate thermal limitations under Section 316(a) of the Clean Water Act to conclude all regulatory issues initiated by the Sierra Club suit. A decision by the IPCB is expected by late 1996. An adverse decision could necessitate installation of closed cycle cooling facilities or operational restrictions at one or more stations. The Great Lakes Critical Programs Act of 1990 requires that, following the issuance of guidance by the U.S. EPA, the states of Illinois and Indiana, among others, adopt water quality standards, policies and procedures to assure protection of the water quality of the Great Lakes. Water quality standards and procedures that the states would be required to adopt are to be based on the U.S. EPA's final guidance issued on March 13, 1995. ComEd is presently following state activities to promulgate rules implementing the final guidance, and assessing the extent to which such may impact certain ComEd facilities. Ultimately, the new rules may require that ComEd install additional pollution control equipment or restrict operations at its facilities that discharge, either directly or indirectly, into Lake Michigan. The Clean Air Amendments require reductions in nitrogen oxide emissions from ComEd's and the Indiana Company's fossil fuel generating units. On January 26, 1996, the U.S. EPA issued a final rule exempting existing sources inside the Chicago ozone non-attainment area from further nitrogen oxide emission reductions; however, this exemption is limited pending further study of ozone transport. The Illinois EPA is also considering nitrogen oxide emission reductions at ComEd generating stations outside the Chicago ozone non- attainment area also due to ozone transport. Under the Acid Rain program, the 60 U.S. EPA will prepare nitrogen oxide emission regulations that would apply to all of ComEd's boilers with a compliance date of January 1, 2000. These regulations were proposed on January 19, 1996 and include limits for cyclone and tangentially fired boilers. CERCLA provides for immediate response and removal actions coordinated by the U.S. EPA to releases of hazardous substances into the environment and authorizes the U.S. Government either to clean up sites at which hazardous substances have created actual or potential environmental hazards or to order persons responsible for the situation to do so. Under CERCLA, generators and transporters of hazardous substances, as well as past and present owners and operators of hazardous waste sites, are made strictly, jointly and severally liable for the cleanup costs of waste at sites, most of which are listed by the U.S. EPA on the NPL. These responsible parties can be ordered to perform a cleanup, can be sued for costs associated with a U.S. EPA directed cleanup, may voluntarily settle with the U.S. Government concerning their liability for cleanup costs, or may voluntarily begin a site investigation and site remediation prior to listing on the NPL under state oversight. Various states, including Illinois, have enacted statutes which contain provisions substantially similar to CERCLA. ComEd and its subsidiaries are or are likely to become parties to proceedings initiated by the U.S. EPA, state agencies and/or other responsible parties under CERCLA with respect to a number of sites, including MGP sites, or may voluntarily undertake to investigate and remediate sites for which they may be liable under CERCLA. MGPs manufactured gas in Illinois from approximately 1850 to 1950. ComEd generally did not operate MGPs as a corporate entity but did, however, acquire MGP sites as part of the absorption of smaller utilities. Approximately half of these sites were transferred to Northern Illinois Gas Company as part of a general conveyance in 1954. ComEd also acquired former MGP sites as vacant real estate on which ComEd facilities have been constructed. To date, ComEd has identified 44 former MGP sites for which it may be liable for remediation. ComEd presently estimates that its costs of former MGP site investigation and remediation will aggregate from $25 million to $150 million in current-year (1996) dollars. It is expected that the costs associated with investigation and remediation of former MGP sites will be incurred over a period of approximately 20 to 30 years. Because ComEd is not able to determine the most probable liability for such MGP costs, in accordance with accounting standards, a reserve of approximately $25 million has been included on the Consolidated Balance Sheets as of December 31, 1995 and June 30, 1996, which reflects the low end of the range of ComEd's estimate of the liability associated with former MGP sites. In addition, as of December 31, 1995 and June 30, 1996, a reserve of $8 million has been included on the Consolidated Balance Sheets, representing ComEd's estimate of the liability associated with cleanup costs of remediation sites other than former MGP sites. Approximately half of this reserve relates to anticipated cleanup costs associated with a property formerly used as a tannery which was purchased by ComEd in 1973. Unicom and ComEd presently estimate that ComEd's costs of investigating and remediating the former MGP and other remediation sites pursuant to CERCLA and state environmental laws will not have a material impact on the financial position or results of operations of Unicom or ComEd. These cost estimates are based on currently available information regarding the responsible parties likely to share in the costs of responding to site contamination, the extent of contamination at sites for which the investigation has not yet been completed and the cleanup levels to which sites are expected to have to be remediated. In 1991, the U.S. Government filed a complaint in U.S. District Court alleging that ComEd and four other defendants are PRPs for remediation costs associated with surface, soil and groundwater contamination alleged to have occurred from the disposal by other persons of hazardous wastes at a site located near ComEd's Byron station near Byron, Illinois. The U.S. Government alleges that a portion of the site is owned by ComEd. The U.S. Government is presently seeking reimbursement from the PRPs for past study and response costs associated with the site of approximately $7 million. ComEd is currently pursuing a negotiated settlement and is not actively pursuing cost recovery from other PRPs at this time. In 1990, the IPCB replaced existing landfill regulations with new, more stringent design and performance standards. These regulations are expected to increase the cost to ComEd for disposal of 61 coal combustion by-products at its Joliet station. At Joliet, an existing landfill utilized for disposal of coal ash may require the installation by 1997 of engineered retrofits designed to protect groundwater. ComEd has requested exemptions from certain of the new regulations from the IPCB. If its request is denied, then alternative landfill siting, commercial disposal, or retrofitting of the existing facility could result in significant increases in disposal expenditures. The outcome of many of the regulatory proceedings referred to above, if not favorable, could have a material adverse effect on Unicom and ComEd's future business and operating results. An unresolved issue is whether exposure to EMFs may result in adverse health effects or damage to the environment. EMFs are produced by virtually all devices carrying or utilizing electricity, including transmission and distribution lines as well as home appliances. If regulations are adopted related to EMFs, they could affect the construction and operation of electrical equipment, including transmission and distribution lines and the cost of such equipment. ComEd cannot predict the effect on the cost of such equipment or operations if new regulations related to EMFs are adopted. In the absence of such regulations, EMFs have nonetheless become an issue in siting facilities and in other land use contexts. Litigation has been filed in a variety of locations against a variety of defendants (including ComEd) alleging that the presence or use of electrical equipment has had an adverse effect on the health of persons or has caused a diminution in property values of land adjacent to these facilities. If plaintiffs are successful in litigation of this type and it becomes widespread, the impact on ComEd and on the electric utility industry is not predictable, but could be severe. From time to time, Unicom and its subsidiaries are, or are claimed to be, in violation of or in default under orders, statutes, rules or regulations relating to environmental controls and other matters, compliance plans imposed upon or agreed to by them or permits issued by various state and federal agencies for the construction or operation of their facilities. Unicom and ComEd do not believe, so far as they now foresee, that such violations or defaults will have a material adverse effect on their future business and operating results, except for events otherwise described in Unicom and ComEd's Annual Reports on Form 10-K for the year ended December 31, 1995 or in these Quarterly Reports on Form 10-Q for the quarterly period ended June 30, 1996, which could have such an effect. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Unicom's annual meeting of shareholders was held on May 22, 1996. At that meeting, each of the persons named in the table below was elected as a director. Vote totals for each director are shown below:
SHARES SHARES NOMINEE VOTED FOR WITHHELD FROM ------- ----------- ------------- Jean Allard........................................... 185,556,604 3,879,827 Edward A. Brennan..................................... 185,882,448 3,553,983 James W. Compton...................................... 185,749,268 3,687,163 Sue L. Gin............................................ 185,835,561 3,600,870 Donald P. Jacobs...................................... 185,846,835 3,589,596 Edgar D. Jannotta..................................... 185,925,100 3,511,331 George E. Johnson..................................... 185,724,530 3,711,901 Edward A. Mason....................................... 185,712,945 3,723,486 Leo F. Mullin......................................... 185,970,865 3,465,566 James J. O'Connor..................................... 185,758,718 3,677,713 Frank A. Olson........................................ 185,949,368 3,487,063 Samuel K. Skinner..................................... 185,476,201 3,960,230
Also at the meeting, the appointment by Unicom's Board of Directors of Arthur Andersen LLP as auditors for the year 1996 was approved. A total of 186,241,563 shares voted to approve the appointment, 1,581,485 shares voted against and 1,613,383 shares abstained. 62 In addition, the Unicom Corporation 1996 Directors' Fee Plan was approved at the meeting. A total of 172,743,026 shares voted to approve the plan, 9,318,821 shares voted against approval of the plan and 7,374,584 shares abstained. ComEd's annual meeting of shareholders was held on May 22, 1996. At that meeting, each of the persons named in the table below was elected as a director. Vote totals for each director are shown below:
SHARES NOMINEE VOTED FOR ------- ----------- Jean Allard......................................................... 214,185,572 Edward A. Brennan................................................... 214,185,572 James W. Compton.................................................... 214,185,572 Sue L. Gin.......................................................... 214,185,572 Donald P. Jacobs.................................................... 214,185,572 Edgar D. Jannotta................................................... 214,185,572 George E. Johnson................................................... 214,185,572 Edward A. Mason..................................................... 214,185,572 Leo F. Mullin....................................................... 214,185,572 James J. O'Connor................................................... 214,185,572 Frank A. Olson...................................................... 214,185,572 Samuel K. Skinner................................................... 214,185,572
Also at the meeting, the appointment by ComEd's Board of Directors of Arthur Andersen LLP as auditors for the year 1996 was approved. A total of 214,185,572 shares voted to approve the appointment. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ------------------------------------------------------------------ (12) Statement computing Commonwealth Edison Company ratios of earnings to fixed charges and ratios of earnings to fixed charges and preferred and preference stock dividend requirements. (23)-1 Consent of independent public accountants applicable to Unicom Corporation. (23)-2 Consent of independent public accountants applicable to Commonwealth Edison Company. (27)-1 Financial data schedule of Unicom Corporation. (27)-2 Financial data schedule of Commonwealth Edison Company.
(b) Reports on Form 8-K None. 63 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on the 8th day of August, 1996. The signature for each undersigned company shall be deemed to relate only to matters having reference to such company and its subsidiaries thereof. Unicom Corporation Registrant Roger F. Kovack By __________________________________ Roger F. Kovack Comptroller (Chief accounting officer and officer duly authorized to sign on behalf of the registrant) Commonwealth Edison Company Registrant Roger F. Kovack By __________________________________ Roger F. Kovack Comptroller (Chief accounting officer and officer duly authorized to sign on behalf of the registrant) 64 EXHIBIT INDEX Exhibits filed with or incorporated by reference in Form 10-Q for the quarterly period ended June 30, 1996: EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------ ---------------------------------------------------------------------- (12) Statement computing Commonwealth Edison Company ratios of earnings to fixed charges and ratios of earnings to fixed charges and preferred and preference stock dividend requirements. (23)-1 Consent of independent public accountants applicable to Unicom Corporation. (23)-2 Consent of independent public accountants applicable to Commonwealth Edison Company. (27)-1 Financial data schedule of Unicom Corporation. (27)-2 Financial data schedule of Commonwealth Edison Company. EX-12 2 STATEMENT OF COMPUTATION OF RATIOS OF EARNINGS Exhibit (12) Commonwealth Edison Company Form 10-Q File No. 1-1839 Commonwealth Edison Company and Subsidiary Companies Consolidated ----------------------------------------------------------------- Computation of Ratios of Earnings to Fixed Charges and Ratios of Earnings to Fixed Charges and Preferred and Preference Stock Dividend Requirements ---------------------------------------------------- (Thousands of Dollars)
Twelve Months Ended ----------------------------- Line December 31, June 30, No. 1995 1996 - ---- ------------ ---------- 1 Net income before extraordinary item $ 737,176 $ 778,090 ------------ ---------- 2 Net provisions for income taxes and investment tax credits deferred 3 charged to- 4 Operations $ 503,519 $ 523,985 5 Other income (7,685) (12,171) ------------ ---------- 6 $ 495,834 $ 511,814 ------------ ---------- 7 Fixed charges- 8 Interest on debt $ 589,217 $ 553,432 9 Estimated interest component of nuclear fuel and 10 other lease payments, rentals and other interest 73,003 69,710 11 Amortization of debt discount, premium and expense 22,738 21,968 12 Preferred securities dividend requirements of subsidiary trust 4,428 12,908 ------------ ---------- 13 $ 689,386 $ 658,018 ------------ ---------- 14 Preferred and preference stock dividend requirements- 15 Provisions for preferred and preference stock dividends $ 69,961 $ 69,172 16 Taxes on income required to meet provisions for 17 preferred and preference stock dividends 45,945 45,500 ------------ ---------- 18 $ 115,906 $ 114,672 ------------ ---------- 19 Fixed charges and preferred and preference stock 20 dividend requirements $ 805,292 $ 772,690 ------------ ---------- 21 Earned for fixed charges and preferred and preference stock 22 dividend requirements $ 1,922,396 $1,947,922 ------------ ---------- 23 Ratios of earnings to fixed charges (line 22 divided by line 13) 2.79 2.96 ==== ==== 24 Ratios of earnings to fixed charges and preferred and preference 25 stock dividend requirements (line 22 divided by line 20) 2.39 2.52 ==== ====
EX-23.1 3 CONSENT OF ACCOUNTANTS TO UNICOM CORP. Exhibit (23)-1 Unicom Corporation Form 10-Q File No. 1-11375 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS ----------------------------------------- As independent public accountants, we hereby consent to the incorporation by reference of our report in this Form 10-Q for the quarterly period ended June 30, 1996 (Report), into Unicom Corporation's previously filed prospectuses dated March 18, 1994, constituting part of Form S-4 Registration Statement File No. 33-52109, as amended (relating to Common Stock of Unicom Corporation), as further amended by Post-Effective Amendment No. 1 on Form S-8 (relating to Commonwealth Edison Company's Employee Savings and Investment Plan) and Post-Effective Amendment No. 2 on Form S-8 (relating to Unicom Corporation's Employee Stock Purchase Plan); Form S-8 Registration Statement File No. 33-56991 (relating to Unicom Corporation's Long-Term Incentive Plan), Form S-4 Registration Statement File No. 333-01003 (relating to Common Stock of Unicom Corporation) and Form S-8 Registration Statement File No. 333-04749 (relating to Unicom Corporation's 1996 Directors' Fee Plan). We also consent to the application of our Report to Commonwealth Edison Company and subsidiary companies' ratios of earnings to fixed charges and ratios of earnings to fixed charges and preferred and preference stock dividend requirements for each of the twelve months ended December 31, 1995 and June 30, 1996 appearing in this Form 10-Q. ARTHUR ANDERSEN LLP Chicago, Illinois August 8, 1996 EX-23.2 4 CONSENT OF ACCOUNTANTS TO COMMONWEALTH EDISON Exhibit (23)-2 Commonwealth Edison Company Form 10-Q File No. 1-1839 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS ----------------------------------------- As independent public accountants, we hereby consent to the incorporation by reference of our report in this Form 10-Q for the quarterly period ended June 30, 1996 (Report), into Commonwealth Edison Company's (the Company) previously filed prospectuses as follows: (1) prospectus dated August 21, 1986, constituting part of Form S-3 Registration Statement File No. 33-6879, as amended (relating to the Company's Debt Securities and Common Stock); (2) prospectus dated January 7, 1994, constituting part of Form S-3 Registration Statement File No. 33-51379 (relating to the Company's Debt Securities and Cumulative Preference Stock); and (3) prospectus dated September 19, 1995, constituting part of Amendment No. 1 to Form S-3 Registration Statement File No. 33-61343, as amended (relating to Company-Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trust). We also consent to the application of our Report to the ratios of earnings to fixed charges and the ratios of earnings to fixed charges and preferred and preference stock dividend requirements for each of the twelve months ended December 31, 1995 and June 30, 1996 appearing in this Form 10-Q. ARTHUR ANDERSEN LLP Chicago, Illinois August 8, 1996 EX-27.1 5 FINANCIAL DATA SCHEDULE OF UNICOM
UT This schedule contains summary financial information extracted from the Consolidated Balance Sheet and Statement of Consolidated Capitalization as of June 30, 1996 and the related Statements of Consolidated Income, Retained Earnings and Cash Flows for the six months ended June 30, 1996 and is qualified in its entirety by reference to such financial statements. 0000918040 Unicom Corporation 1,000 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 PER-BOOK 17,356,146 1,577,900 1,406,825 0 3,002,544 23,343,415 4,918,725 0 921,822 5,836,860 245,609 507,926 6,062,195 7,550 0 326,850 689,597 43,574 414,763 181,810 9,026,681 23,343,415 3,231,845 176,195 2,499,998 2,681,231 550,614 (48,549) 507,103 269,858 237,245 0 237,245 172,309 0 848,921 1.10 0 This item is not disclosed as a separate line item on the Consolidated Balance Sheet. Includes a deduction of $3,687 thousand for preference stock expense of ComEd. Preferred and preference stocks of ComEd. $1,142,651 thousand of notes and long-term notes payable to banks is included in LONG-TERM-DEBT-NET. Includes $200,000 thousand of ComEd-obligated mandatorily redeemable preferred securities of subsidiary trust. A tax benefit of $5,038 thousand related to non-operating activities is included in INCOME-TAX-EXPENSE. A $32,986 thousand provision for preferred and preference stock dividends of ComEd and $8,480 thousand provision for preferred securities dividends of subsidiary trust are included in OTHER-INCOME-NET. This item is not disclosed as a separate line item on the Statement of Consolidated Income.
EX-27.2 6 FINANCIAL DATA SCHEDULE OF COMMONWEALTH EDISON
UT This schedule contains summary financial information extracted from the Consolidated Balance Sheet and Statement of Consolidated Capitalization as of June 30, 1996 and the related Statements of Consolidated Income, Retained Earnings and Cash Flows for the six months ended June 30, 1996 and is qualified in its entirety by reference to such financial statements. 0000022606 Commonwealth Edison Company 1,000 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 PER-BOOK 17,356,146 1,476,768 1,365,645 0 2,996,060 23,194,619 2,677,485 2,206,911 892,836 5,777,232 245,609 507,926 5,970,266 7,550 0 326,850 687,625 43,574 412,936 181,645 9,033,406 23,194,619 3,231,121 179,536 2,493,146 2,677,720 553,401 (15,734) 542,705 267,366 275,339 32,986 242,353 171,358 0 898,557 1.13 0 This item is not disclosed as a separate line item on the Consolidated Balance Sheet. $1,048,750 thousand of notes and long-term notes payable to bank is included in LONG-TERM-DEBT-NET. Includes $200,000 thousand of company-obligated mandatorily redeemable preferred securities of subsidiary trust. A tax benefit of $5,038 thousand related to non-operating activities is included in INCOME-TAX-EXPENSE. Includes $8,480 thousand of provision for preferred securities dividends of subsidiary trust. This item is not disclosed as a separate line item on the Statement of Consolidated Income.
-----END PRIVACY-ENHANCED MESSAGE-----