ComEd 2006 Annual Report Download - page 41

projections of load were weather and the economy. With retail competition, another major factor is the
ability of retail customers to switch to competitive electric generation suppliers. If fewer of such
customers switch than Generation anticipates, the PECO and/or ComEd load that Generation must
serve will be greater than anticipated, which could, if market prices have increased, increase
Generation’s costs (due to its need to go to market to cover its incremental supply obligation) more
than the increase in Generation’s revenues. If more of such customers switch than Generation
anticipates, the PECO and /or ComEd load that Generation must serve will be lower than anticipated,
which could, if market prices have decreased, caused Generation to lose opportunities in the market.
Generation may not be able to effectively respond to competition in the energy industry.
Generation’s financial performance depends in part on its ability to respond to competition in the
energy industry. As a result of industry restructuring, numerous generation companies created by the
disaggregation of vertically integrated utilities have become active in the wholesale power generation
business. In addition, independent power producers have become prevalent in the wholesale power
industry. These new generating facilities may be more efficient than Generation’s facilities. The
introduction of new technologies could lower prices and have an adverse effect on Generation’s results
of operations or financial condition.
Generation may not be able to effectively respond to increased demand for energy.
Generation’s financial growth depends in part on its ability to respond to increased demand for
energy. As the demand for electricity rises in the future, it may be necessary for the market to increase
capacity through the construction of new generating facilities. Both Illinois and Pennsylvania statutes
contemplate that future generation will be built in those markets at the risk of market participants.
Construction of new generating facilities by Generation in markets in which it currently competes would
be subject to market concentration tests administered by FERC. If Generation cannot pass these tests
administered by FERC, it could be limited in how it responds to increased demand for energy.
Nuclear Operations Risks
Generation’s financial performance may be negatively affected by liabilities arising from its
ownership and operation of nuclear facilities.
Nuclear capacity factors. Capacity factors, particularly nuclear capacity factors, significantly
affect Generation’s results of operations. Nuclear plant operations involve substantial fixed operating
costs but produce electricity at low variable costs due to nuclear fuel costs typically being lower than
fossil fuel costs. Consequently, to be successful, Generation must consistently operate its nuclear
facilities at high capacity factors. Lower capacity factors increase Generation’s operating costs by
requiring Generation to generate additional energy from its fossil or hydroelectric facilities or purchase
additional energy in the spot or forward markets in order to satisfy Generation’s obligations to ComEd
and PECO and other committed third-party sales. These sources generally have higher costs than
Generation incurs to generate energy from its nuclear stations.
Nuclear refueling outages. Refueling outages are planned to occur once every 18 to 24 months
and currently average approximately 24 days in duration. When refueling outages at wholly and
co-owned plants last longer than anticipated or Generation experiences unplanned outages, capacity
factors decrease and Generation faces lower margins due to higher energy replacement costs and/or
lower energy sales. Each 24-day outage, depending on the capacity of the station, will decrease the
total nuclear annual capacity factor between 0.3% and 0.5%. The number of refueling outages,
including the AmerGen plants and the co-owned plants, was 11 in 2006 with 9 planned for 2007. The
projected total non-fuel capital expenditures for the nuclear plants operated by Generation will increase
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