ComEd 2006 Annual Report Download - page 212

Exelon Corporation and Subsidiary Companies
Exelon Generation Company, LLC and Subsidiary Companies
Commonwealth Edison Company and Subsidiary Companies
PECO Energy Company and Subsidiary Companies
Combined Notes to Consolidated Financial Statements—(Continued)
(Dollars in millions, except per share data unless otherwise noted)
Generation had reflected the third-party interest in this majority-owned investment as a long-term
liability in its consolidated financial statements. On March 31, 2006, Generation entered into an
agreement to accelerate the acquisition of Peoples Calumet’s interest in SCEP. This transaction closed
on May 31, 2006. Under the agreement, Generation paid Peoples Calumet approximately $47 million
for its remaining interest in SCEP. Generation financed this transaction using short-term debt and
available cash.
Acquisition and Disposition of Sithe Energies, Inc. (Sithe) (Exelon and Generation)
On January 31, 2005, subsidiaries of Generation completed a series of transactions that resulted
in Generation’s sale of its investment in Sithe. Specifically, subsidiaries of Generation closed on the
acquisition of Reservoir Capital Group’s (Reservoir) 50% interest in Sithe and the sale of 100% of Sithe
to Dynegy, Inc. (Dynegy). Prior to closing on the sale to Dynegy, subsidiaries of Generation received
approximately $65 million in cash distributions from Sithe. As a result of the sale, Exelon and
Generation deconsolidated approximately $820 million of debt from its balance sheets and was no
longer required to provide $125 million of credit support to Dynegy on behalf of Sithe. Dynegy acquired
$32 million of cash as part of the sale of Sithe. In connection with the sale, Exelon recorded $55 million
of liabilities related to certain indemnifications provided to Dynegy and other guarantees directly
resulting from the transaction. Generation issued certain guarantees associated with income tax
indemnifications to Dynegy in connection with the sale that were valued at approximately $8 million
(included in the $55 million accrual discussed above), of which $7 million had expired as of
December 31, 2006. These guarantees are being accounted for under the provisions of FIN 45,
“Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees
of Indebtedness to Others” (FIN 45). The remaining exposures covered by these indemnities are
anticipated to expire in 2007 and beyond. These liabilities were taken into account in the determination
of the net gain on the sale of $24 million (before income taxes). As of December 31, 2006, Exelon’s
accrued liabilities related to these indemnifications and guarantees were $42 million, including $1
million related to income tax indemnifications. The net decrease for the accrual initially established was
due to the expiration of certain guarantees, tax indemnifications and accrued interest on certain
indemnifications. The estimated maximum possible exposure to Exelon related to the guarantees
provided as part of the sales transaction to Dynegy was approximately $175 million at December 31,
2006.
Exelon and Generation’s Consolidated Statements of Operations and Comprehensive Income for
2006, 2005 and 2004, included the following financial results related to Sithe:
2006 2005 (a) 2004 (b)
Operating revenues ................................................ $ — $ 30 $ 248
Operating income .................................................. — 5 1
Net income (loss) .................................................. 4
(d) 18(c) (27)
(a) Sithe was sold on January 31, 2005. Accordingly, results include only one month of operations.
(b) Results include Exelon and Generation’s equity-method losses from Sithe prior to its consolidation on March 31, 2004, as
well as transmission congestion contract (TCC) revenues for 2004, and are not included in the discontinued operations of
Sithe (see Note 3—Discontinued Operations for further information regarding the disposal of Sithe). These equity-method
losses and TCC revenues are presented within income from continuing operations on the Consolidated Statements of
Operations.
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