ComEd 2006 Annual Report Download - page 83

inflation. Exelon’s net income for 2005 reflects an impairment charge of $1.2 billion associated with
ComEd’s goodwill; unrealized mark-to-market losses; losses of $42 million for the cumulative effect of
adopting FIN 47; favorable tax settlements at Generation and PECO; and gains realized on AmerGen’s
decommissioning trust fund investments related to changes in the investment strategy.
Operating Revenues. Operating revenues increased primarily due to an increase in wholesale
and retail electric sales at Generation due to an increase in market prices; higher nuclear output;
electric rate increases at PECO; and higher kWh deliveries at ComEd and PECO, excluding the effects
of weather. These increases were partially offset by unfavorable weather conditions in the ComEd and
PECO service territories. See further analysis and discussion of operating revenues by segment below.
Purchased Power and Fuel Expense.Purchased power and fuel expense decreased due to
lower volumes of power purchased in the market and decreased fossil generation, partially offset by
overall higher market energy prices and higher natural gas and oil prices. Purchased power
represented 20% of Generation’s total supply in 2006 compared to 22% for 2005. See further analysis
and discussion of purchased power and fuel expense by segment below.
Operating and Maintenance Expense. Operating and maintenance expense increased primarily
due to a charge of approximately $55 million for the write-off of capitalized costs associated with the
terminated proposed Merger with PSEG; increased nuclear refueling outage costs; increased
severance and severance-related charges; increased stock-based compensation expense as a result
of adopting SFAS No. 123-R; and the impacts from inflation. These increases were partially offset by a
one-time benefit of $201 million to recover certain costs approved by the ICC’s July 2006 rate order
and the ICC’s December 2006 amended rate order; the impact of the reduction in Generation’s
estimated nuclear asset retirement obligation; mark-to-market gains associated with Exelon’s
investment in synthetic fuel-producing facilities; and a charge for a reserve recorded by Generation in
2005 for estimated future asbestos-related bodily injury claims. See further discussion of operating and
maintenance expenses by segment below.
Impairment of Goodwill. During 2006, ComEd recorded a $776 million impairment charge
associated with its goodwill primarily due to the impacts of the ICC’s July 2006 rate order. During 2005,
in connection with the annually required assessment of goodwill for impairment, ComEd recorded a
$1.2 billion charge.
Depreciation and Amortization Expense. Depreciation and amortization expense increased
primarily due to additional CTC amortization at PECO and additional plant placed in service.
Taxes Other Than Income. Taxes other than income increased primarily due to a reduction in
2005 of previously established real estate tax reserves at PECO and Generation and a net increase in
utility revenue taxes at ComEd and PECO in 2006, partially offset by favorable state franchise tax
settlements at PECO in 2006.
Other Income and Deductions. The change in other income and deductions reflects increased
interest expense associated with the debt issued in 2005 to fund Exelon’s voluntary pension contribution;
higher interest rates on variable rate debt outstanding; higher interest expense on Generation’s one-time
fee for pre-1983 spent nuclear fuel obligations to the DOE; an interest payment to the IRS associated
with the settlement of a tax matter at Generation; and a one-time benefit of $87 million approved by the
ICC’s July 2006 rate order to recover previously incurred debt expenses to retire debt early .
Effective Income Tax Rate. The effective income tax rate from continuing operations was 43.1%
for 2006 compared to 49.8% for 2005. The goodwill impairment charges increased the effective income
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