ComEd 2003 Annual Report Download - page 93

91Notes to Consolidated Financial Statements
EXELON CORPORATION AND SUBSIDIARY COMPANIES
accounting for the Federal subsidy is pending, and that guid-
ance, when issued, could require Exelon to change previously
reported information.
In July 2003, the EITF reached a consensus on EITF Issue
No. 03-11, “Reporting Realized Gains and Losses on Derivative
Instruments That Are Subject to FASB Statement No. 133, ‘Ac-
counting for Derivative Instruments and Hedging Activities,’
and Not ‘Held for Trading Purposes’ as Defined in EITF Issue
No. 02-3, ‘Issues Involved in Accounting for Derivative Con-
tracts Held for Trading Purposes and Contracts Involved in
Energy Trading and Risk Management Activities,” (EITF 03-11),
which was ratified by the FASB in August 2003. The EITF con-
cluded that determining whether realized gains and losses
on physically settled derivative contracts not “held for trad-
ing purposes” should be reported in the income statement
on a gross or net basis is a matter of judgment that depends
on the relevant facts and circumstances. The impact, if any,
of adopting EITF 03-11 on Exelon’s operating revenues and
operating expenses has not been determined but could be
material. The adoption of EITF 03-11 will have no impact on
net income.
As discussed above, FIN No. 46 was effective for Exelon’s
variable interest entities created after January 31, 2003 and
FIN No. 46-R was effective December 31, 2003 for Exelon’s
other variable interest entities that are considered to be
special-purpose entities. FIN No. 46-R applies to all other
variable interest entities as of March 31, 2004. Exelon be-
lieves that it is reasonably possible that it will consolidate
Sithe as of March 31, 2004. Generation is a 50% owner of
Sithe and accounts for this entity as an unconsolidated
equity investment. Sithe owns and operates power generat-
ing facilities. Generation contractually does not own any in-
terest in Sithe International, a subsidiary of Sithe. As such, a
portion of Sithe’s net assets and results of operations would
be eliminated from Generation’s Consolidated Balance
Sheets and Consolidated Statements of Income through a
minority interest if Sithe is consolidated under FIN No. 46-R
as of March 31, 2004. See Note 3—Sithe for a further dis-
cussion of Generation’s investment in Sithe. Exelon con-
tinues to review other entities with which Exelon and its
subsidiaries have business arrangements to determine if
those entities are variable interest entities under FIN No. 46-
R and, if so, whether consolidation of these entities will be
required as of March 31, 2004.
NOTE 02 ‰ACQUISITIONS AND DISPOSITIONS
AmerGen Energy Company, LLC
On December 22, 2003, Generation purchased British Energy
plc’s (British Energy) 50% interest in AmerGen for $276.5
million.
Prior to the purchase, Generation was a 50% owner of
AmerGen and had accounted for the investment as an
unconsolidated equity investment. From January 1, 2003
through the date of closing, Generation recorded $47 million
of equity in earnings of unconsolidated affiliates related to
its investment in AmerGen and had significant purchased
power agreements (PPAs) with AmerGen. The book value of
Generation’s investment in AmerGen prior to the purchase
was $311 million.
The transaction was accounted for as a step acquisition.
As such, upon consolidation, Generation was required to
allocate its $311 million book value as discussed above to 50%
of AmerGen’s equity balance. The difference between Gen-
eration’s investment in AmerGen and 50% of AmerGen’s
equity book value of approximately $227 million was primar-
ily due to Generation not recognizing a significant portion of
the cumulative effect of the change in accounting principle
at AmerGen related to the adoption of SFAS No. 143. Gen-
eration reduced AmerGen’s equity value through the reduc-
tion of the book value of AmerGen’s long-lived assets.
Exelon recorded the acquired assets and liabilities of
AmerGen (remaining 50%) to fair value as of the date of pur-
chase. The following assets and liabilities, reflecting the
equity basis and fair value adjustments discussed above, of
AmerGen were recorded within Exelon’s Consolidated Bal-
ance Sheets as of the date of purchase:
Current assets (including $36 million of cash acquired) $ 128
Property, plant and equipment, including nuclear fuel 129
Nuclear decommissioning trust funds 1,108
Deferred debits and other assets 31
Current liabilities (174)
Asset retirement obligation (487)
Deferred credits and other liabilities (106)
Long-term debt (41)
Total equity $ 588
As of December 31, 2003, the assets and liabilities of
AmerGen were fully consolidated into Exelon’s financial
statements. The above allocation of purchase price is
preliminary related to the valuation of long-lived assets,
which will be finalized in early 2004.
Exelon New England Holdings Asset Acquisition
On November 1, 2002, Generation purchased the assets of
Sithe New England Holdings, LLC (now known as Exelon New
England), a subsidiary of Sithe, and related power marketing
operations with a total of 4,066 megawatts of capacity. Ex-
elon New England’s primary assets were gas-fired generat-
ing facilities under construction. The purchase price for the
Exelon New England assets consisted of a $536 million note
to Sithe, $14 million of direct acquisition costs and a $208
million adjustment to Generation’s previously existing in-
vestment in Sithe related to Exelon New England.