Commonwealth Edison Company unaudited Consolidated Financial Statements

As of June 30, 2008

As of December 31, 2007

Portion of Total Related to MGP Investigation and Remediation

Total Environmental Investigation and Remediation Reserve

EX-99.2 3 dex992.htm COMMONWEALTH EDISON COMPANY UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Commonwealth Edison Company unaudited Consolidated Financial Statements

EXHIBIT 99.2

COMMONWEALTH EDISON COMPANY

COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
(In millions)	2008			2007			2008			2007
Operating revenues
Operating revenues	$	1,424		$	1,419		$	2,863		$	2,907
Operating revenues from affiliates		1			1			2			4

Total operating revenues		1,425			1,420			2,865			2,911

Operating expenses
Purchased power		494			508			950			1,096
Purchased power from affiliate		326			330			711			710
Operating and maintenance		237			221			443			415
Operating and maintenance from affiliates		43			45			86			95
Depreciation and amortization		113			109			224			217
Taxes other than income		71			76			140			157

Total operating expenses		1,284			1,289			2,554			2,690

Operating income		141			131			311			221

Other income and deductions
Interest expense		(83	)		(73	)		(178	)		(141	)
Interest expense to affiliates, net		(4	)		(14	)		(14	)		(29	)
Equity in losses of unconsolidated affiliates		(3	)		(2	)		(5	)		(4	)
Other, net		5			5			9			7

Total other income and deductions		(85	)		(84	)		(188	)		(167	)

Income before income taxes		56			47			123			54
Income taxes		21			18			47			21

Net income		35			29			76			33

Other comprehensive (loss) income, net of income taxes
Change in unrealized gain on cash-flow hedges		—			1			—			4
Unrealized (loss) gain on marketable securities		(1	)		1			(2	)		1

Other comprehensive (loss) income		(1	)		2			(2	)		5

Comprehensive income	$	34		$	31		$	74		$	38

See the Notes to Consolidated Financial Statements

COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Six Months Ended June 30,
(In millions)	2008			2007
Cash flows from operating activities
Net income	$	76		$	33
Adjustments to reconcile net income to net cash flows provided by operating activities:
Depreciation, amortization and accretion		224			217
Deferred income taxes and amortization of investment tax credits		19			14
Other non-cash operating activities		108			107
Changes in assets and liabilities:
Accounts receivable		14			(38	)
Inventories		(3	)		10
Accounts payable, accrued expenses and other current liabilities		151			84
Receivables from and payables to affiliates, net		64			(129	)
Income taxes		26			24
Restricted cash		11			(42	)
Pension and non-pension postretirement benefit contributions		(3	)		(3	)
Other assets and liabilities		(64	)		(93	)

Net cash flows provided by operating activities		623			184

Cash flows from investing activities
Capital expenditures		(505	)		(559	)
Change in restricted cash		(50	)		(1	)
Other investing activities		10			11

Net cash flows used in investing activities		(545	)		(549	)

Cash flows from financing activities
Changes in short-term debt		(370	)		415
Issuance of long-term debt		1,325			286
Retirement of long-term debt		(558	)		(146	)
Retirement of long-term debt to financing trusts		(335	)		(180	)

Net cash flows provided by financing activities		62			375

Increase in cash and cash equivalents		140			10
Cash and cash equivalents at beginning of period		87			35

Cash and cash equivalents at end of period	$	227		$	45

See the Notes to Consolidated Financial Statements

COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)


(In millions)	June 30, 2008		December 31, 2007
ASSETS
Current assets
Cash and cash equivalents	$	227	$	87
Restricted cash		54		15
Accounts receivable, net
Customer		709		706
Other		145		203
Inventories, net		76		74
Regulatory assets		135		101
Mark-to-market derivative asset with affiliate		151		13
Other		41		42

Total current assets		1,538		1,241

Property, plant and equipment, net		11,457		11,127
Deferred debits and other assets
Regulatory assets		495		503
Investments		43		46
Goodwill		2,625		2,625
Receivables from affiliates		1,717		1,908
Mark-to-market derivative asset with affiliate		623		443
Prepaid pension asset		860		875
Other		527		608

Total deferred debits and other assets		6,890		7,008

Total assets	$	19,885	$	19,376

See the Notes to Consolidated Financial Statements

COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)


(In millions)	June 30, 2008			December 31, 2007
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Short-term borrowings	$	—		$	370
Long-term debt due within one year		220			122
Long-term debt to ComEd Transitional Funding Trust due within one year		94			274
Accounts payable		387			289
Accrued expenses		310			367
Payables to affiliates		126			55
Customer deposits		119			119
Regulatory liabilities		153			17
Deferred income taxes		—			33
Other		131			66

Total current liabilities		1,540			1,712

Long-term debt		4,707			4,023
Long-term debt to financing trusts		206			361
Deferred credits and other liabilities
Deferred income taxes and unamortized investment tax credits		2,100			2,049
Asset retirement obligations		172			163
Non-pension postretirement benefit obligations		217			185
Regulatory liabilities		3,456			3,447
Other		887			908

Total deferred credits and other liabilities		6,832			6,752

Total liabilities		13,285			12,848

Commitments and contingencies
Shareholders’ equity
Common stock		1,588			1,588
Other paid-in capital		4,968			4,968
Retained earnings (deficit)		45			(29	)
Accumulated other comprehensive (loss) income, net		(1	)		1

Total shareholders’ equity		6,600			6,528

Total liabilities and shareholders’ equity	$	19,885		$	19,376

See the Notes to Consolidated Financial Statements

COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)


(In millions)	Common Stock		Other Paid-In Capital		Retained (Deficit) Earnings Unappropriated			Retained Earnings Appropriated		Accumulated Other Comprehensive Income (Loss)			Total Shareholders’ Equity
Balance, December 31, 2007	$	1,588	$	4,968	$	(1,639	)	$	1,610	$	1		$	6,528
Net income		—		—		76			—		—			76
Appropriation of retained earnings for future dividends		—		—		(74	)		74		—			—
Adjustment of the adoption of FIN 48		—		—		(2	)		—		—			(2	)
Other comprehensive loss, net of income taxes of $(1)		—		—		—			—		(2	)		(2	)

Balance, June 30, 2008	$	1,588	$	4,968	$	(1,639	)	$	1,684	$	(1	)	$	6,600

See the Notes to Consolidated Financial Statements

COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions unless otherwise noted)

1.	Basis of Presentation

Commonwealth Edison Company (ComEd) is a regulated utility engaged principally in the purchase and regulated retail and wholesale sale of electricity and the provision of distribution and transmission services to a diverse base of residential, commercial, industrial and wholesale customers in northern Illinois, including the City of Chicago. ComEd’s retail service territory has an area of approximately 11,300 square miles and an estimated population of eight million. The service territory includes the City of Chicago, an area of about 225 square miles with an estimated population of three million. ComEd has approximately 3.8 million customers.

ComEd is a principal subsidiary of Exelon Corporation (Exelon), which owns more than 99% of ComEd’s common stock. ComEd’s consolidated financial statements include the accounts of ComEd and Commonwealth Edison Company of Indiana, Inc. ComEd’s investments in its subsidiaries, ComEd Financing II, ComEd Financing III, ComEd Funding LLC and ComEd Transitional Funding Trust are accounted for under the equity method of accounting. All intercompany transactions have been eliminated.

The accompanying consolidated financial statements as of June 30, 2008 and 2007 and for the three and six months then ended are unaudited but, in the opinion of the management of ComEd, include all adjustments that are considered necessary for a fair presentation of its respective financial statements in accordance with accounting principles generally accepted in the United States of America (GAAP). All adjustments are of a normal, recurring nature, except as otherwise disclosed. The December 31, 2007 Consolidated Balance Sheets were taken from audited financial statements. These Notes to Consolidated Financial Statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) for Quarterly Reports on Form 10-Q. Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. These notes should be read in conjunction with the Notes to Consolidated Financial Statements of ComEd included in ITEM 8 of its 2007 Annual Report on Form 10-K.

2.	New Accounting Pronouncements

SFAS No. 157

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement No. 157, “Fair Value Measurements” (SFAS No. 157). SFAS No. 157 defines fair value for financial accounting and reporting purposes, establishes a framework for measuring fair value and expands disclosures about fair value measurements but does not change the requirements to apply fair value in existing accounting standards. Under SFAS No. 157, fair value refers to the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal or, in the absence of a principal, the most advantageous market. The standard clarifies that fair value should be based on the assumptions market participants would use when pricing the applicable asset or liability.

SFAS No. 157 was effective and adopted by ComEd as of January 1, 2008. The provisions of SFAS No. 157 are being applied prospectively. The adoption of SFAS No. 157 has not had a material impact on ComEd’s results of operations, cash flows or financial position in the three and six months ended June 30, 2008. See Note 12 — Fair Value of Financial Assets and Liabilities for additional information regarding the adoption of SFAS No. 157.

In February 2008, the FASB issued FASB Staff Position (FSP) FAS 157-2, “Effective Date of FASB Statement No. 157” (FSP FAS 157-2), which delays the effective date of SFAS No. 157 for all nonrecurring fair value measurements of nonfinancial assets and liabilities until fiscal years beginning after November 15, 2008. ComEd has elected to defer the adoption of the nonrecurring fair value measurement disclosures of nonfinancial assets and liabilities. The adoption of FSP FAS 157-2 is not expected to have a material impact on ComEd’s results of operations, cash flows or financial position.

SFAS No. 159

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115” (SFAS No. 159). SFAS No. 159 allows an entity to irrevocably elect fair value for the initial and subsequent measurement of certain financial instruments and other items that are not currently required to be measured at fair value. When the fair value option is elected and a company chooses to record eligible items at fair value, the company must report unrealized gains and losses on those items in results of operations at each subsequent reporting date. Additionally, the transition provisions of SFAS No. 159 permit a one-time election for existing positions at the adoption date, with a cumulative-effect adjustment included in opening retained earnings. All future changes in fair value will be reported in results of operations. ComEd did not elect the fair value option allowed by SFAS No. 159.

FSP FIN 39-1

In April 2007, the FASB issued FSP FASB Interpretation No. (FIN) 39-1, “Amendment of FASB Interpretation No. 39” (FSP FIN 39-1). This pronouncement amends FIN 39, “Offsetting of Amounts Related to Certain Contracts,” to permit companies to offset fair value amounts recognized for the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) against fair value amounts recognized for derivative instruments executed with the same counterparty under a master netting arrangement. FSP FIN 39-1 was effective for ComEd as of January 1, 2008. See Note 6 — Derivative Financial Instruments for additional information regarding adoption of FSP FIN 39-1. The provisions of FSP FIN 39-1 are not currently applicable to ComEd.

SFAS No. 160

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements” (SFAS No. 160). SFAS No. 160 clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. SFAS No. 160 requires that changes in a parent’s ownership interest in a subsidiary be reported as an equity transaction in the consolidated financial statements when it does not result in a change in control of the subsidiary. When a change in a parent’s ownership interest results in deconsolidation, a gain or loss should be recognized in the consolidated financial statements. SFAS No. 160 must be applied prospectively as of January 1, 2009, except for the presentation and disclosure requirements, which are required to be applied retrospectively for all periods presented. The adoption of SFAS No. 160 will not have a material impact on ComEd’s results of operations, cash flows or financial position; however, it could impact future transactions entered into by ComEd.

SFAS No. 161

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133” (SFAS No. 161). SFAS No. 161 amends and expands the disclosure requirements of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (SFAS No. 133), by requiring enhanced disclosures about how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations, and how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. SFAS No. 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. SFAS No. 161 will be effective for ComEd as of January 1, 2009. As SFAS No. 161 provides only disclosure requirements, the adoption of this standard will not have a material impact on ComEd’s results of operations, cash flows or financial position.

FSP FAS 142-3

In April 2008, the FASB issued FSP FAS No. 142-3, “Determination of the Useful Life of Intangible Assets” (FSP FAS 142-3). This pronouncement amends Statement No. 142, “Goodwill and Other Intangible Assets” (SFAS No. 142), regarding the factors that should be considered in developing the useful lives for intangible assets with renewal or extension provisions. FSP FAS 142-3 requires an entity to consider its own historical experience in renewing or extending similar arrangements, regardless of whether those arrangements have explicit renewal or extension provisions, when determining the useful life of an intangible asset. In the absence of such experience, an entity shall consider the assumptions that market participants would use about renewal or extension, adjusted for entity-specific factors. FSP FAS 142-3 also requires an entity to disclose information regarding the extent to which the expected future cash flows associated with an intangible asset are affected by the entity’s intent and/or ability to renew or extend the arrangement. FSP FAS 142-3 will be effective for qualifying intangible assets acquired by ComEd on or after January 1, 2009. The application of FSP FAS 142-3 is not expected to have a material impact on ComEd’s results of operations, cash flows or financial position; however, it could impact future transactions entered into by ComEd.

3.	Regulatory Issues

Illinois Settlement Agreement. In July 2007, following extensive discussions with legislative leaders in Illinois, ComEd, Exelon Generation LLC (Generation), and other utilities and generators in Illinois reached an agreement (Illinois Settlement) with various parties concluding discussions of measures to address concerns about higher electric bills in Illinois without rate freeze, generation tax or other legislation that ComEd believes would be harmful to consumers of electricity, electric utilities, generators of electricity and the State of Illinois. Legislation reflecting the Illinois Settlement (Illinois Settlement Legislation) was passed by the Illinois Legislature on July 26, 2007 and was signed into law on August 28, 2007 by the Governor of Illinois. The Illinois Settlement and the Illinois Settlement Legislation provide for the following, among other things:

•

Various Illinois electric utilities, their affiliates, and generators of electricity in Illinois agreed to contribute approximately $1 billion over a period of four years to programs to provide rate relief to Illinois electricity customers and funding for the Illinois Power Agency (IPA) created by the Illinois Settlement Legislation. Exelon committed to contributing approximately $800 million to rate relief programs over four years (2007-2010) in addition to approximately $11 million of rate relief credits provided by ComEd from January 1, 2007 through June 14, 2007 under its $64 million rate relief program previously announced. The contributions are recognized in the financial statements of ComEd as rate relief credits are applied to customer bills or as operating expenses associated with the programs are incurred.

ComEd’s Customers’ Affordable Reliable Energy (CARE) initiative was established prior to the consummation of the Illinois Settlement to help mitigate the impacts of electricity rate increases in 2007 on certain customers after the expiration of the retail electric rate freeze transition period in Illinois and includes a variety of energy efficiency, low-income and senior citizen programs.

During the three and six months ended June 30, 2008 and 2007, ComEd recognized net costs from contributions pursuant to the Illinois Settlement in its Statements of Operations as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2008		2007		2008		2007
Credits to customers (a)	$	2	$	18	$	3	$	19
Other rate relief programs, including CARE(b)		—		5		4		8

Total incurred costs	$	2	$	23	$	7	$	27
Credits funded by Generation		46		—		96		—

Total credits issued to customers and other rate relief programs	$	48	$	23	$	103	$	27

(a)	Recorded as a reduction in operating revenues.

(b)	Recorded as a charge to operating and maintenance expense.

•

Electric utilities are required to include cost-effective energy efficiency resources in their plans to meet incremental annual program energy savings goals of 0.2% of energy delivered to retail customers in the year commencing June 1, 2008, increasing annually to 2% of energy delivered in the year commencing June 1, 2015 and each year thereafter. Additionally, commencing June 1, 2008 and continuing for a period of ten years, electric utilities must implement cost effective demand response measures to reduce peak demand by 0.1% over the prior year for eligible retail customers. The energy efficiency and demand response goals are subject to rate impact caps each year. Utilities are allowed recovery of costs for energy efficiency and demand response programs, subject to approval by the Illinois Commerce Commission (ICC). Failure to comply with the energy efficiency requirements in the Illinois Settlement Legislation would result in ComEd being subject to penalties, including losing control of the programs, and other charges. Pursuant to these requirements, ComEd filed its initial Energy Efficiency and Demand Response Plan with the ICC on November 15, 2007. On February 6, 2008, the ICC issued an order approving substantially all of ComEd’s plan, including cost recovery. This plan began June 1, 2008 and is designed to meet the Illinois Settlement Legislation’s energy efficiency and demand response goals for an initial three-year period, including reductions in delivered energy to all retail customers and in the peak demand of eligible retail customers.

•

The procurement plans developed initially by the electric utilities for the fiscal year beginning June 1, 2008 and by the IPA for all fiscal years thereafter must include cost-effective renewable energy resources in amounts that equal or exceed 2% of the total electricity that each electric utility supplies to its eligible retail customers, increasing to 10% by June 1, 2015, with a goal of 25% by June 1, 2025. All goals are subject to rate impact criteria set forth in the Illinois Settlement Legislation. Utilities will be allowed to pass through procurement costs of renewable resources. ComEd conducted a request for proposal (RFP) to procure renewable energy credits in late April 2008 to be used for compliance with Illinois’ renewable energy requirements for the period June 2008 through May 2009. Under the RFP, which was approved by the ICC, ComEd will procure approximately $19 million in renewable energy credits for this period. ComEd started recovering these costs through rates in June 2008.

Illinois Procurement Case and Related Proceedings. In January 2007, ComEd began procuring electricity under supplier forward contracts with various suppliers, including Generation. The supplier forward contracts resulted from an ICC-approved “reverse-auction” competitive bidding process, which permitted recovery by ComEd of its electricity procurement costs from retail customers with no markup. The first procurement auction for ComEd’s entire load occurred in September 2006 and deliveries pursuant to the auction began in January 2007. The energy price that resulted from the first auction was fixed through May 31, 2008, at which time one-third of the auction contracts expired. However, the Illinois Settlement Legislation amended that competitive bidding process. Under the Illinois Settlement Legislation, the IPA, with the oversight of the ICC, will participate in the design of an electricity supply portfolio for ComEd and will administer a competitive process under which ComEd will procure its electricity supply resources, for deliveries in the supply period beginning June 2009. In the interim, on December 19, 2007, the ICC approved a plan under which ComEd will procure power for the period from June 2008 to May 2009. Under this plan, standard block energy purchases, acquired through an ICC-approved RFP, coupled with purchases of energy, capacity and ancillary services in PJM-administered markets, are used to replace the portion of the auction contracts that expired on May 31, 2008. The final prices resulting from purchases in PJM-administered markets may significantly vary, impacting the total cost to fulfill electricity requirements of ComEd’s customers. In order to mitigate the price risk, a portion of the energy price has been locked in through a financial only hedge with Generation. In early March 2008, ComEd completed its RFP pursuant to that plan and the ICC voted to approve the lowest-cost package of bids received as recommended by the procurement administrator. ComEd’s purchases acquired through the RFP represent approximately 14% of its expected energy needs from June 2008 through May 2009. Approximately 19% of ComEd’s expected energy load for the same period has been hedged with its swap with Generation. The ICC-approved prices reflected in the compliance tariff filing following the ICC’s approval of the recent RFP incorporate the applicable PJM Interconnection, LLC (PJM) Reliability Pricing Model (RPM) capacity prices. As this RFP related to only a portion of ComEd’s load requirement beginning in June 2008, the RPM impacts to overall customer electric rates are not significant. However, as ComEd’s auction contracts expire and energy is procured in the future, the increase in capacity prices associated with recent RPM capacity auctions may have a more significant impact to customer electric rates.

2005 Rate Case. On August 31, 2005, ComEd filed a rate case with the ICC to comprehensively revise its tariffs and to adjust rates for delivering electricity effective January 2007 (2005 Rate Case). ComEd proposed a revenue increase of $317 million. During 2006, the ICC issued various orders associated with this case, which resulted in a total annual rate increase of $83 million effective January 2007. ComEd and various other parties have appealed the rate order to the courts. ComEd cannot predict the results or the timing of the appeal. In the event the order is ultimately changed, the changes are expected to be prospective.

Original Cost Audit. In connection with the 2005 Rate Case proceeding, the ICC, with ComEd’s concurrence, ordered an “original cost” audit of ComEd’s distribution assets. In December 2007, the consulting firm that completed the audit presented its findings to the ICC staff regarding accounting methodology, documentation and other matters, along with proposed adjustments. The results of the audit were reported in April 2008 to the ICC. The audit report recommends gross plant disallowances of approximately $350 million, before reflecting accumulated depreciation. Approximately $80 million of the costs were disallowed because the consultant believed they were misclassified between ComEd’s distribution and transmission operations; ComEd has already reclassified these costs and they have been reflected correctly in ComEd’s current delivery service rate proceedings. While ComEd believes the remainder of the consulting firm’s findings are without merit, the ultimate resolution of the audit could result in a material disallowance and related write-off of a portion of the original cost of ComEd’s delivery system assets after reflecting the appropriate associated accumulated depreciation and deferred income taxes associated with the disallowances.

On April 10, 2008, ComEd and the ICC staff reached a stipulation (the stipulation) covering portions of contested issues in the Original Cost Audit as well as the 2007 Rate Case as discussed below. The stipulation, which is conditional upon approval by the ICC in the 2007 Rate Case, would require ComEd to incur a charge of approximately $20 million (pre-tax) related to various items identified in the Original Cost Audit. The stipulation does not preclude other parties to the rate case or to the Original Cost Audit proceeding from taking positions contrary to the stipulation.

On July 10, 2008, the Administrative Law Judges (ALJs) issued a recommendation to the ICC to not approve the stipulation and a recommendation that each item in the Original Cost Audit should be addressed on its own merits in its own proceeding. If the ICC does not approve the stipulation, ComEd expects to challenge the findings of the Original Cost Audit. The ICC previously opened a proceeding on the Original Cost Audit on May 13, 2008. There is no set timeline for resolution of this matter, and the proceeding has been delayed until after the final ICC Order in the 2007 distribution rate case discussed below.

2007 Rate Case. On October 17, 2007, ComEd filed a request (2007 Rate Case) with the ICC seeking approval to increase its delivery service revenue requirement to reflect increasing operating costs and its continued investment in delivery service assets since rates were last determined. If approved by the ICC, the total proposed increase of approximately $360 million in the net annual revenue requirement, which was based on a 2006 test year and capital additions projected through the third quarter of 2008, would increase an average residential customer bill by approximately 7%. In addition, ComEd requested future recovery of certain

amounts that were previously recorded as expense. If approved, ComEd would reverse the previously expensed costs and establish regulatory assets with amortization over the period during which rate recovery is allowed. As a result, ComEd would recognize a one-time benefit of up to approximately $15 million (pre-tax) to reverse the prior charges.

The filing also included a storm rider and a system modernization rider. The storm rider would allow for the recovery from or return to customers of the actual costs incurred for storm restoration expense activities relative to a baseline amount. The system modernization rider would allow for certain capital projects to be pre-approved by the ICC and reflected in rates on a quarterly basis instead of waiting for the next rate case to obtain approval and begin recovery.

Various intervenors and the ICC staff have filed testimony challenging the amount of the rate increase and proposed various disallowances, which could lead to write-offs that could be material to ComEd’s results of operations, cash flow or financial position. The ICC staff indicated that ComEd’s rate increase, after agreeing to the stipulation, should be approximately $262 million on an annual basis. Under the terms of the stipulation, ComEd and the ICC have agreed to reflect the capital additions for 2007 and the first two quarters of 2008 in ComEd’s rate base; however, the third quarter 2008 capital additions have been excluded. If the ICC does not approve the stipulation in its entirety, ComEd believes it has appropriately included the third quarter 2008 capital additions in rate base in this proceeding.

On April 21, 2008, ComEd filed its surrebuttal testimony, which included a $345 million revenue increase reflecting certain adjustments. ComEd’s testimony also included informational data that reflected a $314 million increase reflecting the impacts of the stipulation and certain other reductions. Hearings before the ALJs occurred during the second quarter of 2008.

On July 10, 2008, the ALJs issued a recommendation to the ICC for a $218 million rate increase. The proposed order does not recommend approval of the stipulation and suggests the issues in the Original Cost Audit should be addressed on their individual merits in its own proceedings. The proposed order, if approved by the ICC, would also require ComEd to write-off approximately $18 million (pre-tax) for the disallowance of certain plant costs, which would be partially offset by the establishment of regulatory assets associated with previously incurred costs as described above, amounting to approximately $13 million (pre-tax). This proposed write-off is exclusive of the write-off discussed in the stipulation. The proposed order rejects the storm rider, while providing limited support for the proposed system modernization rider.

A final ICC order must be issued by mid-September 2008, at which time any rate increase would become effective. The ICC may still approve the stipulation. If approved by the ICC, ComEd anticipates it would incur the $20 million (pre-tax) charge associated with the stipulation during the third quarter of 2008. The ICC could also approve the $18 million (pre-tax) disallowance proposed by the ALJs in addition to or instead of the disallowance in the stipulation. As of June 30, 2008, ComEd has not recorded any disallowances or regulatory assets as a result of the stipulation or the proposed order. Any adjustments required will take place at the time of the final ICC order. ComEd cannot predict how much of the requested delivery service rate increase the ICC may approve, if any, whether they will approve recovery of the previously incurred costs, or whether any rate increase that may eventually be approved will be sufficient for ComEd to adequately recover its costs when the increase goes into effect. Similarly, ComEd cannot predict whether the ICC will approve the riders or if the ICC will order any disallowances or write-offs, including any amounts associated therewith, which could be material to ComEd’s results of operations, cash flow or financial position.

Transmission Rate Case. On March 1, 2007, ComEd filed a request with the Federal Energy Regulatory Commission (FERC) seeking approval to update its transmission rates and change the manner in which such rates are determined from fixed rates to a formula rate. ComEd also requested incentive rate treatment for certain transmission projects. In June 2007, FERC issued an order that conditionally approved ComEd’s proposal to implement a formula-based transmission rate effective as of May 1, 2007, subject to refund, hearing procedures and conditions. Effective May 1, 2007, PJM began billing customers based on the conditional FERC order.

In October 2007, ComEd made a filing with FERC seeking approval of a settlement agreement reached by most active parties and opposed by no party in the transmission rate proceeding. FERC approved the settlement agreement on January 16, 2008. The settlement agreement establishes the agreed-upon treatment of costs and revenues in the determination of network service transmission rates and the process for updating the formula rate calculation on an annual basis. The settlement agreement provides for a base return on equity on transmission rate base of 11% plus an adder of 0.50% in recognition of ComEd’s participation in a regional transmission organization, a cap of 58% on the equity component of ComEd’s capital structure (declining to 55% by 2011), and a debt-only return based on ComEd’s long-term cost of debt on ComEd’s pension asset. The settlement agreement results in a first-year annual transmission network service revenue requirement increase of approximately $93 million, or a $24 million reduction from the revenue requirement conditionally approved by FERC in its June 5, 2007 order. The formula rate will be updated annually to ensure that customers pay the actual costs of providing transmission services. In addition, on January 18, 2008, FERC issued an order on ComEd’s request for rehearing on incentive returns that permitted ComEd to include a 1.5% adder to the return on equity for ComEd’s largest transmission project, thereby resulting in a 13% return on equity for the project. The order also authorizes the inclusion of 100% of construction work in progress in rate base for that

project, but rejects incentive treatment for certain other projects requested by ComEd. The cumulative impact of the above items is an annual revenue requirement of approximately $390 million. On February 19, 2008, several parties filed a petition for rehearing of FERC’s January 18 order. FERC has not yet ruled on this request.

On May 15, 2008, ComEd filed its first annual update filing, which updates ComEd’s formula rate to include actual 2007 expenses and capital additions plus forecasted 2008 capital additions. The update resulted in a revenue requirement of $456 million, which includes approximately $26 million related to the 2007 true-up for a total increase of approximately $66 million. The new rate will be used by PJM to determine charges for services in the ComEd zone for June 1, 2008 through May 31, 2009. The filing will be reviewed by FERC and intervenors, who have until December 2008 to challenge the calculation of the new rate. ComEd has been reflecting its best estimate of its anticipated approved true-up in the financial statements. As of June 30, 2008, ComEd had a regulatory asset associated with its 2007 true-up, which will be amortized through May 31, 2009. However, in calculating the estimated first-year formula rate true-up during the first quarter of 2008 and after the filing of the ComEd’s 2007 Annual Report on Form 10-K, ComEd identified an adjustment to be made for amounts inadvertently recorded in 2007 related to regulatory assets associated with the first-year formula rate true-up. The impact of the regulatory asset adjustment reduced ComEd’s net income by $3 million (after tax) for the six months ended June 30, 2008.

Competitive Electric Generation Suppliers. In November 2007, Illinois Senate Bill (SB) 1299 was enacted into law. Among other things, the new law will generally require utilities to purchase receivables through an ICC tariff from competitive electric generation suppliers for power and energy service provided to the utility’s retail customers with a non-coincident peak demand of less than 400 kw. The law expressly provides for the recovery of the reasonable costs associated with the implementation of the law and ongoing costs of purchasing the receivables including the risk of uncollectible accounts.

Through and Out (T&O) Rates and Seams Elimination Charge/Cost Adjustment/Assignment (SECA). In November 2004, FERC issued two orders authorizing ComEd to recover amounts for a limited time during a specified transitional period as a result of the elimination of T&O rates for transmission service scheduled out of or across its transmission system and ending within territories of PJM or Midwest Independent Transmission System Operator (MISO). T&O rates were terminated pursuant to FERC orders, effective December 1, 2004. The transition rates, known as SECA, were collected from load-serving entities and paid to transmission owners within PJM and MISO over the period of December 1, 2004 through March 31, 2006, and were subject to refund, surcharge and hearing. As a load-serving entity, ComEd was also required to pay SECA rates during the transitional period based on the benefits it received from the elimination of T&O rates of other transmission owners within PJM and MISO. Since the inception of the SECA rates in December 2004, ComEd has recorded approximately $49 million of SECA collections net of SECA charges. The ALJs issued an Initial Decision on August 10, 2006 finding that the transmission owners overstated their lost revenues in their compliance filings and the SECA rate design was flawed. Additionally, the ALJs recommended that the transmission owners should be ordered to refile their respective compliance filings related to SECA rates. ComEd filed exceptions to the Initial Decision and FERC, on review, will determine whether or not to accept the ALJs’ recommendation. There is no scheduled date for FERC to act on this matter. Separately, settlements have been reached by ComEd with various parties. FERC has approved several of these settlements while others are still awaiting FERC approval. Management of ComEd believes that appropriate reserves have been established for the estimated portion of SECA collections that may be required to be refunded. These reserves generally reflect settlements reached to date. The ultimate outcome of the proceeding establishing SECA rates is uncertain, but ComEd does not believe ultimate resolution of this matter will have a material impact on its respective results of operations, cash flows, or financial position.

PJM Transmission Rate Design. In July 2006, the ALJ issued an Initial Decision that recommended that FERC implement the postage stamp rate suggested by FERC staff, effective as of April 1, 2006, but also allowed for the potential to phase in rate changes. In April 2007, FERC issued its order on review of the ALJ’s decision. FERC held that PJM’s current rate design for existing facilities is just and reasonable and should not be changed. That is consistent with ComEd’s position in the case. FERC also held that the costs of new facilities should be allocated under a different rate design. FERC held that the costs of new facilities 500 kilovolts (kV) and above should be socialized across the entire PJM footprint and that the costs of new facilities less than 500 kV should be allocated to the beneficiaries of the new facilities. FERC stated that PJM’s stakeholders should develop a standard method for allocating the costs of new transmission facilities lower than 500 kV. In September 2007, a settlement was reached on most of the issues relating to allocating costs of new transmission facilities lower than 500 kV. FERC’s decision on existing facilities leaves the status quo as to existing costs, which is substantially more favorable to ComEd than the ALJ’s decision as to existing facilities. In the short term, based on new transmission facilities approved by PJM, it is likely that allocating the costs of new 500 kV facilities across PJM will increase costs to ComEd, as compared to the allocation methodology in effect before the FERC order. On May 21, 2007, ComEd filed a request for rehearing of FERC’s April 2007 order. On January 31, 2008, FERC denied rehearing on all issues. Several parties have filed petitions in the United States Court of Appeals for review of the decision. ComEd anticipates that all impacts of any rate design changes effective after December 31, 2006 should be recoverable through retail rates, and thus the rate design changes are not expected to have a material impact on ComEd’s results of operations, cash flows or financial position.

PJM-MISO Regional Rate Design. In August 2007, ComEd and several other transmission owners in PJM and MISO, as directed by a FERC order issued in November 2004, filed with FERC to continue the existing transmission rate design between PJM and MISO. On August 22, 2007, additional transmission owners and certain other entities filed protests urging FERC to reject the filing. On September 17, 2007, a complaint was filed at FERC asking FERC to find that the PJM-MISO rate design was unjust and unreasonable and to substitute a rate design that socializes the costs of all existing and new transmission facilities of 345 kV and above across PJM and MISO. ComEd filed a response in October 2007 stating that FERC should dismiss the complaint without a hearing. On January 31, 2008, FERC denied the complaint. A request for rehearing of these orders has been filed and any decision may then be subject to review in the United States Court of Appeals. ComEd cannot predict the outcome of this litigation.

Authorized Return on Rate Base. With the end of the transition and rate freeze period in Illinois, the ICC authorized in the 2005 Rate Case a return on ComEd’s 2004 adjusted test year distribution rate base of 8.01% starting in 2007. As part of the FERC-approved settlement of ComEd’s 2007 transmission rate case discussed above, ComEd’s formula transmission rate currently provides for a weighted average debt and equity return on transmission rate base of 9.37% (exclusive of the incentive ROE on the large project discussed above). The weighted average debt and equity return on transmission rate base will be updated annually in accordance with the formula-based rate calculation discussed above.

Market-Based Rates. ComEd is a public utility for purposes of the Federal Power Act and is required to obtain FERC’s acceptance of rate schedules for wholesale sales of electricity. Currently, ComEd has authority to sell power at market-based rates. As is customary with market-based rate schedules, FERC has reserved the right to suspend market-based rate authority on a retroactive basis if it subsequently determines that Generation or any of its affiliates has violated the terms and conditions of its tariff or the Federal Power Act. FERC is also authorized to order refunds if it finds that the market-based rates are not just and reasonable under the Federal Power Act.

On June 21, 2007, FERC issued a Final Rule on Market-Based Rates for Wholesale Sales of Electric Energy, Capacity and Ancillary Services by Public Utilities, which updated and modified the tests that FERC had implemented in 2004. On December 14, 2007, FERC issued an order clarifying some provisions in the Final Rule. On January 14, 2008, ComEd filed an analysis using FERC’s updated screening tests, as required by the Final Rule. The filing demonstrated that under those tests, one called the pivotal supplier test and the other the market share test, ComEd should be permitted to continue to sell at market-based rates. On April 4, 2008, FERC requested ComEd to provide additional information. FERC is not expected to act on the filing until later in 2008. ComEd does not expect that the Final Rule will have a material effect on its results of operations in the short-term. The longer-term impact will depend on the future application by FERC of the Final Rule. On April 21, 2008, FERC issued an order on rehearing of its June 21, 2007 order and on July 17, 2008 FERC issued a further order on rehearing and clarification.

On March 12, 2008, the ICC intervened in the proceeding on the filing ComEd made with FERC. The ICC indicated it has no objection to FERC authorizing ComEd and its affiliates to continue making market-based sales; but the ICC argued that existing waivers of FERC rules on affiliate transactions should no longer apply between ComEd and its affiliates. If FERC adopts the ICC’s position, (1) no wholesale sale of electric energy could be made between ComEd and a market-regulated power sales affiliate, such as Generation without first receiving FERC authorization for the transaction; (2) sales of any non-power goods or services by ComEd to a market-regulated power sales affiliate, such as Generation, or nonutility affiliate must be at the higher of cost or market price; (3) except as provided in (4) below, ComEd may not purchase or receive non-power goods and services from a market-regulated power sales affiliate, such as Generation, or a non-utility affiliate at a price above market; and (4) ComEd may only purchase or receive non-power goods and services from Exelon Business Services Company, LLC (BSC) at cost. ComEd’s management believes that it would not have a material impact to its respective results of operations, cash flows or financial position.

4.	Intangible Assets

Goodwill. As of June 30, 2008 and December 31, 2007, ComEd had goodwill of approximately $2.6 billion. Under the provisions of SFAS No. 142, goodwill is tested for impairment at least annually or more frequently if events or circumstances indicate that it is “more likely than not” that goodwill might be impaired, such as a significant negative regulatory outcome. ComEd performs the annual goodwill impairment assessment in the fourth quarter of each year.

Other Intangible Assets. Other intangible assets, included in deferred debits and other assets in the balance sheet, consisted of the following as of June 30, 2008 and December 31, 2007:


								Estimated amortization expense
June 30, 2008	Gross		Accumulated Amortization			Net		Remainder of 2008		2009		2010		2011		2012
Chicago settlement – 1999 agreement(a)	$	100	$	(57	)	$	43	$	2	$	3	$	3	$	3	$	3
Chicago settlement – 2003 agreement (b)		62		(19	)		43		2		4		4		4		4

Total intangible assets	$	162	$	(76	)	$	86	$	4	$	7	$	7	$	7	$	7


								Estimated amortization expense
December 31, 2007	Gross		Accumulated Amortization			Net		2008		2009		2010		2011		2012
Chicago settlement – 1999 agreement(a)	$	100	$	(55	)	$	45	$	3	$	3	$	3	$	3	$	3
Chicago settlement – 2003 agreement(b)		62		(17	)		45		4		4		4		4		4

Total intangible assets	$	162	$	(72	)	$	90	$	7	$	7	$	7	$	7	$	7

(a)

On March 22, 1999, ComEd entered into a settlement agreement with the City of Chicago (City) to end an arbitration proceeding between ComEd and the City regarding the franchise agreement relative to ComEd’s ability to distribute electricity in the City and a supplemental agreement, whereby ComEd agreed to make payments of $25 million to the City each year from 1999 to 2002. The intangible asset recognized as a result of these payments is being amortized ratably over the remaining term of the franchise agreement. The franchise agreement ends in 2020.

(b)

On February 20, 2003, ComEd entered into separate agreements with the City and with Midwest Generation, LLC (Midwest Generation). Under the terms of the settlement agreement with the City, ComEd agreed to pay the City a total of $60 million over a ten-year period, beginning in 2003, and, among other things, be relieved of a requirement, originally transferred to Midwest Generation upon the sale of ComEd’s fossil plants in 1999, to build a 500 MW generation facility in the City. As required by the settlement, ComEd also made a payment of $2.3 million to a third party on the City’s behalf. The intangible asset recognized as a result of the settlement agreement is being amortized ratably over the remaining term of the franchise agreement.

Pursuant to the agreement discussed above, ComEd received payments of $32 million from Midwest Generation to relieve Midwest Generation’s obligation under the fossil sale agreement to build the generation facility in the City. The payments received by ComEd, which have been recorded in other long term liabilities, are being recognized ratably (approximately $2 million annually) as an offset to amortization expense over the remaining term of the franchise agreement.

ComEd’s net amortization expense related to intangible assets was $1 million for the three months ended June 30, 2008 and 2007 and $3 million for the six months ended June 30, 2008 and 2007.

5.	Debt and Credit Agreements

Short-Term Borrowings

ComEd meets its short-term liquidity requirements primarily through borrowings under its credit facility. As of June 30, 2008, ComEd had access to an unsecured revolving credit facility with an aggregate bank commitment of $1 billion. See Note 11 of ComEd’s 2007 Annual Report on Form 10-K for additional information regarding the credit facility.

ComEd had no outstanding credit facility borrowings outstanding at March 31, 2008 and $370 million outstanding at December 31, 2007.

Issuance of Long-Term Debt

During the six months ended June 30, 2008, the following long-term debt was issued:


Type	Interest Rate		Maturity	Amount(a)
First Mortgage Bonds	6.45	%	January 15, 2038	$	450
First Mortgage Bonds	5.80	%	March 15, 2018		700
First Mortgage Bonds (b)(c)	Variable		March 1, 2020		50
First Mortgage Bonds (b)(c)	Variable		March 1, 2017		91
First Mortgage Bonds (b)(c)	Variable		May 1, 2021		50

(a)	Excludes unamortized bond discounts.

(b)	First Mortgage bonds issued under the ComEd mortgage indenture to secure variable weekly-rate tax-exempt pollution control bonds that were issued to refinance variable auction-rate tax-exempt pollution control bonds.

(c)

During the second quarter of 2008, ComEd established a $216 million letter of credit facility, of which $194 million is used to provide credit enhancement to variable-rate tax exempt bonds including $3 million of accrued interest. The new facility and letters of credit issued under the new facility will expire on May 9, 2009.

Retirement of Long-Term Debt

During the six months ended June 30, 2008, the following long-term debt was retired:


Type	Interest Rate		Maturity	Amount
Subordinated Debentures of ComEd Financing II	8.50	%	January 15, 2027	$	155

First Mortgage Bonds	3.70	%	February 1, 2008		295

First Mortgage Bonds	8.00	%	May 15, 2008		120

ComEd Transitional Funding Trust	5.74	%	December 25, 2008		180

Sinking fund debentures	3.875	%	January 1, 2008		1
First Mortgage Bonds (a)	Variable		March 1, 2020		50
First Mortgage Bonds (a)	Variable		March 1, 2017		91
Sinking fund debentures	4.75	%	December 1, 2011		1

(a)	First Mortgage bonds issued under the ComEd mortgage indenture to secure variable weekly-rate tax-exempt pollution control bonds that were issued to refinance variable auction-rate tax-exempt pollution control bonds.

6.	Derivative Financial Instruments

ComEd utilizes derivative instruments to manage exposures to a number of market risks, including changes in interest rates and the impact of market fluctuations in the price of electricity.

Interest-Rate Swaps

ComEd may utilize fixed-to-floating interest-rate swaps, which are typically designated as fair-value hedges, as a means to achieve its targeted levels of variable-rate debt as a percent of total debt. In addition, ComEd may utilize interest-rate derivatives to lock in interest-rate levels in anticipation of future financings, which are typically designated as cash-flow hedges. At June 30, 2008 and December 31, 2007, ComEd did not have any interest rate swaps designated as cash-flow hedges outstanding.

Energy-Related Derivatives

ComEd has entered into certain other derivative instruments that do not qualify or are not designated as hedges under SFAS No. 133. ComEd believes these instruments represent economic hedges that mitigate exposure to fluctuations in commodity prices.

The contracts that ComEd has entered into with Generation and other suppliers as part of the initial ComEd power procurement auction and the recent RFP qualify for the normal purchases and normal sales exception to SFAS No. 133. See Note 3 – Regulatory Issues for additional information.

The following table provides a summary of the fair value balances of the derivatives recorded as of June 30, 2008 and December 31, 2007:


	IL Settlement Swap (a)
	June 30, 2008		December 31, 2007
Derivatives
Current Assets	$	151	$	13
Noncurrent Assets		623		443

Total mark-to-market energy contract assets		774		456

Total mark-to-market energy contract net assets (liabilities)	$	774	$	456

(a)

Includes current and noncurrent asset of $151 million and $623 million, respectively as of June 30, 2008 and includes current and noncurrent asset of $13 million and $443 million, respectively as of December 31, 2007, related to the fair value of Generation’s and ComEd’s five-year financial swap contract, as described below under “Illinois Settlement Swap Contract”.

Illinois Settlement Swap Contract. In order to fulfill a requirement of the Illinois Settlement, ComEd and Generation entered into a five-year financial swap contract effective August 28, 2007, the effect of which is to cause ComEd to pay fixed prices and to cause Generation to pay a market price for a portion of ComEd’s electricity supply requirement. The contract is to be settled net, for the difference between the fixed and market pricing, and the financial terms only cover energy costs and do not cover capacity or ancillary services. ComEd has not elected hedge accounting for this derivative financial instrument and records

the fair value of the swap on its balance sheet. However, since the financial swap contract was deemed prudent by the Illinois Settlement Legislation, thereby ensuring ComEd of full cost recovery in rates, the change in fair value each period is recorded by ComEd as a regulatory asset or liability. During the six months ended June 30, 2008 and the year ended December 31, 2007, ComEd recorded an increase in regulatory liabilities of $318 million and $456 million, respectively, associated with the swap contract.

Cash-Flow Hedges. For the three and six months ended June 30, 2008, ComEd had no cash flow hedges outstanding. ComEd’s activity of accumulated other comprehensive income (OCI) pertaining to the information about the changes in the fair value of cash-flow hedges and the reclassification from accumulated OCI into results of operations, for the three and six months ended June 30, 2007 was $1 million and $4 million, respectively. For the three and six months ended June 30, 2007, ComEd’s cash-flow hedge activity impact to pre-tax income based on the reclassification adjustment from accumulated OCI to results of operations was a $2 million and $6 million, respectively, pre-tax gain.

Other Derivatives. Other derivative contracts are those that do not qualify or are not designated for hedge accounting. These instruments represent economic hedges that mitigate exposure to fluctuations in commodity prices and include financial options, futures, swaps, and forward sales. For the three and six months ended June 30, 2008, ComEd had no mark-to-market gains (losses) relating to changes in the fair values of certain purchased power and sale contracts pursuant to SFAS No. 133 in the Consolidated Statement of Operations and in net realized and unrealized mark-to-market transactions in the Consolidated Statements of Cash Flows. For the three and six months ended June 30, 2007, the following net pre-tax mark-to-market gains (losses) relating to changes in the fair values of certain purchased power and sale contracts pursuant to SFAS No. 133 were reported in fuel and purchased power expense, revenue, and operating and maintenance expense in the Consolidated Statements of Operations and in net realized and unrealized mark-to-market transactions in the Consolidated Statements of Cash Flows.


	Three months ended June 30, 2007			Six months ended June 30, 2007
Unrealized mark-to-market gains (losses)	$	(3	)	$	(2	)
Realized mark-to-market gains (losses)		1			2

Total net mark-to-market gains (losses)	$	(2	)	$	—

Credit Risk Associated with Derivative Instruments

ComEd would be exposed to credit-related losses in the event of non-performance by counterparties that enter into derivative instruments. The credit exposure of derivative contracts, before collateral, is represented by the fair value of contracts at the reporting date.

Under the Illinois auction rules and the supplier forward contracts that ComEd entered into with counterparty suppliers, including Generation, beginning in 2007, collateral postings are one-sided from suppliers only. That is, if market prices have fallen below ComEd’s contracted price levels, ComEd is not required to post collateral; however, when market prices have risen above contracted price levels with ComEd, counterparty suppliers, including Generation, are required to post collateral once certain credit limits are exceeded. Under the terms of the five-year financial swap contract between ComEd and Generation, there are no immediate collateral provisions on either party. However, the swap contract also provides that: (1) if ComEd is upgraded to investment grade by Moody’s Investor Service or Standard & Poor’s (S&P) and then is later downgraded below investment grade, or (2) if Generation is downgraded below investment grade by Moody’s Investor Service or S&P, collateral postings would be required by the applicable party depending on how market prices compare to the contracted price levels. As of March 19, 2008, ComEd was upgraded to investment grade by S&P, and therefore, the above condition has been satisfied such that if ComEd is later downgraded, it could be subject to margining depending on market prices at that time. Under no circumstances would collateral postings exceed $200 million from either ComEd or Generation under the swap contract. Illinois Settlement Legislation passed in Illinois during 2007 established a new procurement process that utilizes a pay as bid RFP mechanism in place of the procurement auctions. Generation participated in the 2008 ComEd RFP procurement process. Under the terms of the RFP, collateral postings are required of both ComEd and the counterparty supplier, including Generation, should exposures between market prices and contracted prices exceed established credit thresholds outlined in the agreement. Collectively under all of the above-mentioned contracts, as of June 30, 2008, there was no cash collateral posted between Generation and ComEd; however, Generation has issued letters of credit totaling $615 million to ComEd. Collectively under all of the above-mentioned contracts, as of June 30, 2008, ComEd received $69 million of cash collateral. As of June 30, 2008 ComEd does not have any cash collateral or letters of credit outstanding to suppliers.

7.	Retirement Benefits

Exelon sponsors defined benefit pension plans and postretirement benefit plans for essentially all ComEd employees. ComEd expects to contribute approximately $53 million to the benefit plans in 2008. The following amounts were included in capital additions and operating and maintenance expense during the three and six months ended June 30, 2008 and 2007, for ComEd’s, allocated portion of the Exelon-sponsored pension and postretirement benefit plans:


	Three Months Ended June 30,				Six Months Ended June 30,
	2008		2007		2008		2007
Pension and Postretirement Benefit Costs	$	25	$	27	$	50	$	51

401(k) Savings Plan

ComEd participates in a 401(k) savings plan sponsored by Exelon. The plan allows employees to contribute a portion of their income in accordance with specified guidelines. ComEd matches a percentage of the employee contributions up to certain limits. The following table presents the matching contributions to the savings plans during the three and six months ended June 30, 2008 and 2007:


	Three Months Ended June 30,				Six Months Ended June 30
	2008		2007		2008		2007
Savings Plan Matching Contribution	$	5	$	5	$	10	$	9

8.	Income Taxes

ComEd’s effective income tax rate for the three and six months ended June 30, 2008 was 37.5% and 38.2% as compared to 38.3% and 38.9% for the three and six months ended June 30, 2007. Overall, the effective tax rate remains relatively unchanged; however, ComEd’s income tax expense was reduced in the second quarter of 2008 for an IRS settlement of $4 million, which was offset by an increase in income tax expense of $4 million due to non-deductible interest expense.

Accounting for Uncertainty in Income Taxes

ComEd has $674 million of unrecognized tax benefits as of June 30, 2008 and uncertain tax positions have not significantly changed since March 31, 2008.

Other Tax Matters

1999 Sale of Fossil Generating Assets

ComEd has taken certain tax positions, which have been disclosed to the Internal Revenue Service (IRS), to defer the tax gain on the 1999 sale of its fossil generating assets. As of June 30, 2008 and December 31, 2007, deferred tax liabilities related to the fossil plant sale are reflected in ComEd’s Consolidated Balance Sheets with the majority allocated to ComEd and the remainder to Generation. ComEd’s ability to defer all or a portion of this tax liability depends in part on whether its treatment of the sales proceeds, as having been received in connection with an involuntary conversion, is ultimately sustained, either by the IRS or a court, which might ultimately decide the issue. ComEd’s ability to continue to defer the remainder of the tax liability on the fossil plant sale depends also in part on whether its tax characterization of a purchase and leaseback transaction ComEd entered into in connection with the fossil plant sale is respected as a purchase and leaseback (the like-kind exchange transaction), either by the IRS or by a court, which might ultimately decide the issue. In the third quarter of 2007, ComEd received the IRS’ audit report for the taxable period 1999 through 2001, which reflected the full disallowance of the involuntary conversion position and the like-kind exchange transaction. Specifically, the IRS has asserted that the sales proceeds were not received in connection with an involuntary conversion of certain ComEd property rights. In addition, the IRS indicated its position that the ComEd purchase and leaseback transaction is substantially similar to a leasing transaction, known as a sale-in, lease-out (SILO), and, therefore, the IRS is treating it as a “listed transaction” pursuant to IRS guidance issued in 2005. A listed transaction is one which the IRS considers to be a potentially abusive tax shelter. The IRS’ view is that the like-kind transaction did not provide ComEd with a current ownership interest in any property. ComEd disagrees with the IRS characterization of its purchase and leaseback as a SILO and believes its position is justified. In addition, the IRS asserted penalties with respect to the involuntary conversion and like-kind exchange transaction. In the third quarter of 2007, ComEd appealed the disallowance of the deferral of gain as well as the assertion of the penalties to IRS Appeals. ComEd will continue to vigorously defend its positions throughout the IRS Appeals process and any subsequent litigation. ComEd believes it is unlikely that the penalties will be ultimately sustained. If ComEd’s management decides to litigate the matter, ComEd may be required to pay the tax and related interest due on the deficiency and file suit for refund.

A successful IRS challenge to ComEd’s positions would accelerate future income tax payments and increase interest expense related to the deferred tax gain that becomes currently payable. As of June 30, 2008, ComEd’s potential cash outflow, including tax and interest (after tax), could be as much as $1 billion. If the deferral were successfully challenged by the IRS, it could negatively impact ComEd’s results of operations by as much as $184 million (after tax) related to interest expense. Due to the fact that ComEd believes it is unlikely that the penalty assertion will be ultimately sustained, ComEd has not recorded a reserve for the penalties. Should the IRS prevail in asserting such penalty, it will result in an after-tax charge of an additional $196 million to ComEd’s results of operations. ComEd’s management believe that interest and penalties have been appropriately accounted for in accordance with FIN 48; however, the ultimate outcome of such matters could result in unfavorable or favorable impacts to the results of operations, cash flows and financial position, and such impacts could be material. The timing of the final resolution of this matter is unknown. ComEd has accrued interest on these tax positions consistent with the requirements of FIN 48.

Interest on Tax Refunds

During the first quarter of 2008 and after the filing of ComEd’s 2007 Annual Report on Form 10-K, ComEd identified adjustments to be made for amounts recorded in 2007 related to a settlement with the IRS of a research and development claim. Upon further review of the settlement and Exelon’s tax sharing agreements, it was determined that $4 million (after tax) of interest expense recorded in the fourth quarter of 2007 upon finalization of the settlement with the IRS and $2 million of interest recorded through retained earnings in the first quarter of 2007 upon the adoption of FIN 48 was inadvertently recorded at Generation and should have been recorded at ComEd. Management believes these amounts are immaterial individually and in the aggregate to any previously issued financial statements, and also immaterial to expected full year results of operations for 2008. Consequently during the first quarter of 2008, ComEd recorded an increase in interest expense of $4 million (after tax) and a reduction in retained earnings of $2 million.

9.	Commitments and Contingencies

For information regarding capital commitments at December 31, 2007, see Note 19 of the Combined Notes to Consolidated Financial Statements within ComEd’s 2007 Annual Report on Form 10-K. All significant contingencies are disclosed below.

Energy Commitments

In March 2008, ComEd entered into procurement contracts to enable ComEd to meet a portion of its customers’ electricity requirements for the period from June 2008 to May 2009. See Note 3 — Regulatory Issues for additional information. These contracts resulted in an increase in ComEd’s energy commitments of $249 million for the remainder of 2008 and $130 million for 2009.

Commercial and Construction Commitments

ComEd’s commercial and construction commitments as of June 30, 2008, representing commitments potentially triggered by future events, did not change significantly from December 31, 2007, except for the following:

•

Letters of credit increased by $174 million primarily as a result of the new procurement arrangements and new letters of credit to provide credit enhancement for certain tax-exempt First Mortgage Bonds. See Note 5 – Debt and Credit Agreements for more information related to the new letter of credit facility.

•

In May 2008, ComEd entered into contracts for the procurement of renewable energy credits totaling approximately $19 million, $4 million to be purchased in 2008, and $15 million to be purchased in 2009. See Note 3 – Regulatory Issues for more information.

Environmental Liabilities

General

ComEd’s operations have in the past and may in the future require substantial expenditures in order to comply with environmental laws. Additionally, under Federal and state environmental laws, ComEd is generally liable for the costs of remediating environmental contamination of property now or formerly owned by them and of property contaminated by hazardous substances generated by them. ComEd owns or lease a number of real estate parcels, including parcels on which their operations or the operations of others may have resulted in contamination by substances that are considered hazardous under environmental laws. ComEd identified 42 sites where former manufactured gas plant (MGP) activities have or may have resulted in actual site contamination. For almost all of these sites, ComEd is one of several Potentially Responsible Parties (PRPs), which may be responsible for ultimate remediation of each location. Of these 42 sites identified by ComEd, the Illinois Environmental Protection Agency has approved the clean up of nine sites. Of the remaining sites identified by ComEd, 21 sites are currently under some

degree of active study and/or remediation. ComEd anticipates that the majority of the remediation at these sites will continue through at least 2015. In addition, ComEd is currently involved in a number of proceedings relating to sites where hazardous substances have been deposited and may be subject to additional proceedings in the future.

ComEd and Nicor Gas Company, a subsidiary of Nicor Inc. (Nicor), are parties to an interim agreement under which they cooperate in remediation activities at 38 former MGP sites for which ComEd or Nicor, or both, may have responsibility. Under the interim agreement, costs are split evenly between ComEd and Nicor pending their final agreement on allocation of costs at each site. For most of the sites, the interim agreement contemplated that neither party would pay less than 20%, or more than 80% of the final costs for each site. On April 17, 2006, Nicor submitted a demand for arbitration of the cost allocation for the 38 MGP sites. In July 2007, ComEd and Nicor reached an agreement on the allocation of costs for the MGP sites. On January 3, 2008, ComEd and Nicor executed the definitive written agreement. The agreement is contingent upon ICC approval. Through June 30, 2008, ComEd has incurred approximately $119 million associated with remediation of the sites in question. ComEd’s accrual as of June 30, 2008 for these environmental liabilities reflects the cost allocations contemplated in the definitive agreement.

Based on the final order received in ComEd’s 2005 Rate Case, beginning in 2007, ComEd is recovering MGP remediation costs from customers, through a rider, subject to periodic reconciliation. Such recovery is reflected as a regulatory asset. See Note 10 — Supplemental Financial Information for additional information regarding regulatory assets and liabilities.

As of June 30, 2008 and December 31, 2007, ComEd has accrued the following amounts for environmental liabilities:

ComEd cannot predict the extent to which it will incur other significant liabilities for additional investigation and remediation costs at these or additional sites identified by environmental agencies or others, or whether such costs may be recoverable from third parties, including customers.

Litigation and Regulatory Matters

ComEd is involved in various other litigation matters that are being defended and handled in the ordinary course of business. ComEd maintains accruals for such costs that are probable of being incurred and subject to reasonable estimation. ComEd will record a receivable if it expects to recover costs for these contingencies. The ultimate outcomes of such matters, as well as the matters discussed above, are uncertain and may have a material adverse impact on the ComEd’s results of operations, cash flows or financial position.

Reliability. On July 18, 2008, ComEd self-reported to ReliabilityFirst Corporation, its Regional Entity, that it failed to maintain vegetation clearance on a section of a transmission line, constituting a violation of a North American Electric Reliability Corporation (NERC) reliability standard. ComEd is subject to potential fines for a violation of NERC reliability standards. The ultimate outcome of this matter remains uncertain but ComEd does not believe it would result in a material unfavorable impact to ComEd’s consolidated financial statements.

Income Taxes

See Note 8 — Income Taxes for information regarding ComEd’s income tax refund claims and certain tax positions, including the 1999 sale of fossil generating assets.

10.

Supplemental Financial Information

Supplemental Statement of Operations Information

The following tables provide additional information regarding the components of other, net within the Consolidated Statements of Operations and Comprehensive Income for the three and six months ended June 30, 2008 and 2007:


	Three Months Ended June 30,					Six Months Ended June 30,
	2008			2007		2008			2007
Investment income	$	1		$	1	$	5		$	2
Gain on disposition of assets and investments, net		—			1		—			1
Allowance for funds used during construction, equity		2	(a)		1		1	(a)		2
Interest income related to uncertain income tax positions under FIN 48		1			—		1			—
Other		1			2		2			2

Other, net	$	5		$	5	$	9		$	7

(a)	Includes reversal of previously recognized AFUDC resulting from the January 18, 2008 FERC order granting incentive treatment on ComEd’s largest transmission project. See Note 3 – Regulatory Issues for additional information.

For the six months ended June 30, 2008 and 2007, utility taxes of $108 million and $126 million, respectively, are included in revenues and expenses for ComEd.

Supplemental Cash Flow Information

The following tables provide additional information regarding the components of other non-cash operating activities and changes in other assets and liabilities within the Consolidated Statements of Cash Flows for the six months ended June 30, 2008 and 2007:


	Six months ended June 30, 2008			Six months ended June 30, 2007
Other non-cash operating activities:
Pension and non-pension postretirement benefits costs	$	50		$	51
Equity in losses of unconsolidated affiliates and investments		5			4
Provision for uncollectible accounts		22			24
Amortization of regulatory asset related to debt costs		12			13
Other		19			15

Total other non-cash operating activities	$	108		$	107

Changes in other assets and liabilities:
Under/over-recovered energy and transmission costs	$	(49	)	$	(104	)
Other current assets		(1	)		—
Other noncurrent assets and liabilities		(1 4	)		11

Total changes in other assets and liabilities	$	(64	)	$	(93	)

Supplemental Balance Sheet Information

The following tables provide information about the regulatory assets and liabilities of as of June 30, 2008 and December 31, 2007:


	June 30, 2008		December 31, 2007
Regulatory assets
Deferred income taxes	$	15	$	14
Debt costs		154		152
Severance		126		137
Conditional asset retirement obligations		105		100
MGP remediation costs		64		66
Rate case costs		4		5
Procurement case costs		2		3
Other		25		26

Noncurrent regulatory assets		495		503
Under-recovered energy and transmission costs current asset(a)		135		101

Total regulatory assets	$	630	$	604

Regulatory liabilities
Nuclear decommissioning	$	1,715	$	1,905
Removal costs		1,115		1,099
Financial swap with Generation(b)		623		443
Energy efficiency and demand response programs(c)		3		—

Noncurrent regulatory liabilities		3,456		3,447
Financial swap with Generation(b)		151		13
Over-recovered energy and transmission costs current liability (a)		2		4

Total regulatory liabilities	$	3,609	$	3,464

(a)

Over-recovered or under-recovered energy and transmission costs represent purchased power related costs refundable or recoverable under ComEd’s ICC-approved rates. ComEd pays or earns a rate of return on deferred energy and transmission costs. See Note 3 – Regulatory Issues for additional information.

(b)

To fulfill a requirement of the Illinois Settlement, ComEd entered into a five-year financial swap contract with Generation. Since the swap contract was deemed prudent by the Illinois Settlement Legislation, thereby ensuring that ComEd will be entitled to receive full recovery in rates, the changes in fair value each period are recorded by ComEd as a regulatory asset or liability. See Note 3 — Regulatory Issues for additional information.

(c)	As a result of the Illinois Settlement, utilities are allowed recovery of costs for energy efficiency and demand response programs beginning June 1, 2008. See Note 3—Regulatory Issues for more information.

The following tables provide information regarding accumulated depreciation and the allowance for uncollectible accounts as of June 30, 2008 and December 31, 2007:

11.

Related-Party Transactions

The financial statements of ComEd include related-party transactions as presented in the tables below:


	Three Months Ended June 30,				Six Months Ended June 30,
	2008		2007		2008		2007
Operating revenues from affiliates
Generation	$	—	$	—	$	—	$	1
ComEd Transitional Funding Trust		1		1		2		2
Other		—		—		—		1

Total operating revenues from affiliates	$	1	$	1	$	2	$	4

Purchased power from affiliate
Generation(a)	$	326	$	330	$	711	$	710
Operating and maintenance from affiliates
BSC(b)	$	43	$	45	$	86	$	95
Interest expense to affiliates, net
ComEd Transitional Funding Trust	$	1	$	7	$	5	$	16
ComEd Financing II(c)		—		4		2		7
ComEd Financing III		3		3		7		6

Total interest expense to affiliates, net	$	4	$	14	$	14	$	29

Equity in losses of unconsolidated affiliates
ComEd Funding LLC	$	3	$	2	$	5	$	4
Capitalized costs
BSC(b)	$	15	$	16	$	27	$	33


	As of June 30, 2008		As of December 31, 2007
Receivables from affiliates (current)
ComEd Transitional Funding Trust	$	16	$	15
PECO Energy Company		1		2

Total receivables from affiliates (current)(d)	$	17	$	17
Prepaid voluntary employee beneficiary association trust(e)	$	10	$	12


	As of June 30, 2008			As of December 31, 2007
Mark-to-market derivative asset with affiliate (current)
Generation(f)	$	151		$	13
Investments in affiliates
ComEd Funding LLC(g)	$	(16	)	$	(10	)
ComEd Financing II(c)		—			10
ComEd Financing III		6			6

Total investments in affiliates(d)	$	(10	)	$	6

Mark-to-market derivative asset with affiliate (noncurrent)
Generation(f)	$	623		$	443
Receivable from affiliates (noncurrent)
Generation(h)	$	1,715		$	1,905
Other		2			3

Total receivable from affiliates (noncurrent)	$	1,717		$	1,908

Payables to affiliates (current)
Generation(a)(i)(j)	$	100		$	17
BSC(b)		21			26
ComEd Financing II(c)		—			6
ComEd Financing III		4			4
Other		1			2

Total payables to affiliates (current)	$	126		$	55

Long-term debt to ComEd Transitional Funding Trust and other financing trusts (including due within one year)
ComEd Transitional Funding Trust	$	94		$	274
ComEd Financing II(c)		—			155
ComEd Financing III		206			206

Total long-term debt due to financing trusts	$	300		$	635

(a)

ComEd is procuring electricity from Generation under the supplier forward contract resulting from the reverse-auction procurement process and the RFP contracts discussed in Note 3 — Regulatory Issues. As of June 30, 2008 and December 31, 2007 ComEd had a payable for energy purchases to Generation of $139 million and $60 million, respectively.

(b)

ComEd receives a variety of corporate support services from BSC, including legal, human resources, financial, information technology, supply management services. All services are provided at cost, including applicable overhead. A portion of such services is capitalized. Beginning January 1, 2008, certain services previously provided by BSC are performed by ComEd.

(c)	ComEd Financing II was liquidated and dissolved upon repayment of the debt during 2008.

(d)	Receivables from affiliates are included in other current assets. Investments in affiliates are included in other noncurrent assets.

(e)

The voluntary employee benefit association trusts covering active employees are included in Exelon’s operations and are funded by the operating subsidiaries. A prepayment to the active welfare plans has accumulated due to actuarially determined contribution rates, which are the basis for ComEd’s contributions to the plans, being higher than actual claim expense incurred by the plans over time.

(f)	To fulfill a requirement of the Illinois Settlement, ComEd entered into a five-year financial swap with Generation.

(g)

In the fourth quarter of 2008, ComEd expects to fully pay off its long-term debt obligations to the ComEd Transitional Funding Trust (which will retire outstanding transition bonds) and expects to receive its current receivable from the ComEd Transitional Funding Trust. Subsequently in 2008, ComEd Funding LLC expects to liquidate its investment in the ComEd Transitional Funding Trust and ComEd expects to liquidate its investment in ComEd Funding LLC.

(h)

ComEd has a long-term receivable from Generation as a result of the nuclear decommissioning contractual construct, whereby, to the extent the assets associated with decommissioning are greater than the applicable ARO at the end of decommissioning, such amounts are due back to ComEd for payment to ComEd’s customers.

(i)

As of June 30, 2008, ComEd had a $7 million receivable from Generation associated with the completed portion of the financial swap contract entered into as part of the Illinois Settlement Legislation. See Note 3 – Regulatory Issues and Note 6 — Derivative Financial Information for additional information.

(j)

In 2007, ComEd began issuing credits to customers as part of the Illinois Settlement Legislation through rate relief programs. Generation is contributing to a portion of these credits and, therefore, is reimbursing ComEd. As of June 30, 2008, and December 31, 2007, ComEd had a $32 million and $43 million receivable, respectively, from Generation. The majority of the credits will be issued by the end of 2008. See Note 3 — Regulatory Issues for additional information.

12.

Fair Value of Financial Assets and Liabilities

Fair Value of Financial Liabilities Recorded at the Carrying Amount

Fair values for long-term debt are determined by a valuation model which is based on a conventional discounted cash flow methodology and utilizes assumptions of current market pricing curves. The carrying amounts and fair values of long-term debt as of June 30, 2008 and December 31, 2007 were as follows:


	June 30, 2008				December 31, 2007
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Long-term debt (including amounts due within one year)	$	4,927	$	4,748	$	4,145	$	4,126
Long-term debt to ComEd Transitional Funding Trust (including amounts due within one year)		94		95		274		277
Long-term debt to other financing trusts		206		144		361		317

Adoption of SFAS No. 157

Effective January 1, 2008, ComEd partially adopted SFAS No. 157, which primarily requires expanded disclosure for assets and liabilities recorded on the balance sheet at fair value. As permitted by FSP FAS 157-2, ComEd has elected to defer the adoption of the nonrecurring fair value measurement disclosures of nonfinancial assets and liabilities, such as goodwill and asset retirement obligations until January 1, 2009. The partial adoption of SFAS No. 157 did not have a material impact on the ComEd’s results of operations, cash flows or financial position.

To increase consistency and comparability in fair value measurements, SFAS No. 157 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels as follows:

•

Level 1 — quoted prices (unadjusted) in active markets for identical asset or liabilities that ComEd has the ability to access as of the reporting date. Financial assets and liabilities utilizing Level 1 inputs include active exchange-traded equity securities and exchange-based derivatives.

•

Level 2 — inputs other than quoted prices included within Level 1 that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data. Financial assets and liabilities utilizing Level 2 inputs include fixed income securities, non-exchanged-based derivatives, mutual funds and fair-value hedges.

•

Level 3 — unobservable inputs, such as internally-developed pricing models for the asset or liability due to little or no market activity for the asset or liability. Financial assets and liabilities utilizing Level 3 inputs include infrequently-traded non-exchange-based derivatives and commingled investment funds.

Recurring Fair Value Measurements The following table presents assets measured and recorded at fair value on ComEd’s Consolidated Balance Sheets on a recurring basis and their level within the fair value hierarchy as of June 30, 2008:


(In millions)	Level 1		Level 2			Level 3(a)		Balance as of June 30, 2008
Assets
Mark-to-market derivative assets	$	—	$	—		$	774	$	774
Rabbi trust investments		—		39			—		39	(b)
Total assets	$	—	$	39		$	774	$	813

Liabilities
Deferred compensation obligation	$	—	$	(8	)	$	—	$	(8	)
Total liabilities	$	—	$	(8	)	$	—	$	(8	)
Total net assets	$	—	$	31		$	774	$	805

(a)	The Level 3 balance is comprised of the current and noncurrent asset of $151 million and $623 million, respectively, related to the fair value of ComEd’s financial swap contract with Generation.

(b)	Excludes $2 million of the cash surrender value of life insurance investments.

The following table presents the fair value reconciliation of Level 3 assets measured at fair value on a recurring basis during the three and six months ended June 30, 2008:


Three Months Ended June 30, 2008 (In millions)	Mark-to-market derivatives
Balance as of March 31, 2008	$	554
Total realized / unrealized gains(a)
Included in net income		7
Included in regulatory liabilities		213
Balance as of June 30, 2008	$	774

(a)	Includes $220 million of changes in fair value for the three months ended June 30, 2008 related to ComEd’s financial swap contract with Generation.


Six Months Ended June 30, 2008 (In millions)	Mark-to-market derivatives
Balance as of January 1, 2008	$	456
Total realized / unrealized gains (a)
Included in net income		7
Included in regulatory liabilities		311
Balance as of June 30, 2008	$	774

(a)	Includes $318 million of changes in fair value for the six months ended June 30, 2008 related to ComEd’s financial swap contract with Generation.

During the three and six months ended June 30, 2008, ComEd included realized gains of $7 million in net income as a reduction of purchased power expense for the Level 3 mark-to-market derivative asset measured at fair value on a recurring basis related to ComEd’s financial swap contract with Generation.

Valuation Techniques Used to Determine Fair Value

The following describes the valuation techniques used to measure the fair value of the assets and liabilities shown in the tables above.

Rabbi Trust Investments. ComEd’s rabbi trust investments were established to hold assets related to deferred compensation plans existing for certain members of ComEd’s executive management and directors. ComEd’s rabbi trust investments are included in investments in ComEd’s Consolidated Balance Sheets. The rabbi trust investments shown in the fair value table are comprised of mutual funds. The fair value of the shares of the mutual funds is based on observable market prices. However, since the shares of the mutual funds are not exchanged in an active market, they are categorized in Level 2 in the fair value hierarchy.

Mark-to-Market Derivatives. For non-exchange-based derivatives that trade in less liquid markets with limited pricing information, such as the financial swap contract between Generation and ComEd, model inputs generally would include both observable and unobservable inputs. Such instruments are categorized in Level 3.

Deferred Compensation Obligations. ComEd’s deferred compensation plans allow participants to defer certain cash compensation into a notional investment account. ComEd includes such plans in other current and noncurrent liabilities in its Consolidated Balance Sheets. The value of ComEd’s deferred compensation obligations is based on the market value of the participants’ notional investment accounts. The notional investments are comprised primarily of mutual funds, which are based on observable market prices. However, since the mutual funds are not exchanged in an active market, they are categorized in Level 2 in the fair value hierarchy.

17.

Subsequent Events

As disclosed in Note 5 – Debt and Credit Agreements, on June 27, 2008, ComEd issued $50 million of Illinois Finance Authority Series 2008 E tax-exempt, variable weekly-rate bonds. The proceeds of this issuance were used to refinance a portion of three series of tax-exempt, variable auction-rate bonds ($40 million Series 2003, $42 million Series 2003B and $20 million Series 2003D) during July with the final series to be redeemed on July 29, 2008. The remaining portion of these bonds will be redeemed using internally generated cash. In addition, on July 1, 2008, ComEd separately redeemed $100 million of tax-exempt, variable auction-rate bonds (Series 2002 A) using internally generated cash.