Edgar Filing: EXELON CORP

Form 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2009

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


Commission File Number	Name of Registrant; State of Incorporation; Address of Principal Executive Offices; and Telephone Number	IRS Employer Identification Number

1-16169	EXELON CORPORATION	23-2990190
	(a Pennsylvania corporation) 10 South Dearborn Street P.O. Box 805379 Chicago, Illinois 60680-5379 (312) 394-7398

333-85496	EXELON GENERATION COMPANY, LLC	23-3064219
	(a Pennsylvania limited liability company) 300 Exelon Way Kennett Square, Pennsylvania 19348-2473 (610) 765-5959

1-1839	COMMONWEALTH EDISON COMPANY	36-0938600
	(an Illinois corporation) 440 South LaSalle Street Chicago, Illinois 60605-1028 (312) 394-4321

000-16844	PECO ENERGY COMPANY	23-0970240
000-16844	(a Pennsylvania corporation) P.O. Box 8699 2301 Market Street Philadelphia, Pennsylvania 19101-8699 (215) 841-4000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


	Large Accelerated Filer	Accelerated Filer	Non-accelerated Filer	Smaller Reporting Company

Exelon Corporation	ü
Exelon Generation Company, LLC			ü
Commonwealth Edison Company			ü
PECO Energy Company			ü

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No þ.

The number of shares outstanding of each registrant’s common stock as of September 30, 2009 was:


Exelon Corporation Common Stock, without par value		659,377,386
Exelon Generation Company, LLC		not applicable
Commonwealth Edison Company Common Stock, $12.50 par value		127,016,519
PECO Energy Company Common Stock, without par value		170,478,507

TABLE OF CONTENTS


		Page No.

FILING FORMAT		3

FORWARD-LOOKING STATEMENTS		3

WHERE TO FIND MORE INFORMATION		3

PART I.	FINANCIAL INFORMATION	4

ITEM 1.	FINANCIAL STATEMENTS	4

	Exelon Corporation	5

	Consolidated Statements of Operations and Comprehensive Income	5

	Consolidated Statements of Cash Flows	6

	Consolidated Balance Sheets	7

	Consolidated Statement of Changes in Shareholders’ Equity	9

	Exelon Generation Company, LLC	10

	Consolidated Statements of Operations and Comprehensive Income	10

	Consolidated Statements of Cash Flows	11

	Consolidated Balance Sheets	12

	Consolidated Statement of Changes in Equity	14

	Commonwealth Edison Company	15

	Consolidated Statements of Operations and Comprehensive Income	15

	Consolidated Statements of Cash Flows	16

	Consolidated Balance Sheets	17

	Consolidated Statement of Changes in Shareholders’ Equity	19

	PECO Energy Company	20

	Consolidated Statements of Operations and Comprehensive Income	20

	Consolidated Statements of Cash Flows	21

	Consolidated Balance Sheets	22

	Consolidated Statement of Changes in Shareholders’ Equity	24

	Combined Notes to Consolidated Financial Statements	25

	1. Basis of Presentation	25

	2. New Accounting Pronouncements	27

	3. Regulatory Issues	31

	4. Property, Plant and Equipment	44

	5. Intangible Assets	44

	6. Fair Value of Financial Assets and Liabilities	46

	7. Debt and Credit Agreements	64

	8. Derivative Financial Instruments	67

	9. Retirement Benefits	82

	10. Severance Accounting	84


		Page No.

	11. Income Taxes	85

	12. Asset Retirement Obligations	91

	13. Earnings Per Share and Equity	97

	14. Commitments and Contingencies	98

	15. Supplemental Financial Information	112

	16. Segment Information	123

	17. Related-Party Transactions	125

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	133

	Exelon Corporation	133

	General	133

	Executive Overview	133

	Critical Accounting Policies and Estimates	141

	Results of Operations	141

	Liquidity and Capital Resources	169

	Exelon Generation Company, LLC	186

	Commonwealth Edison Company	187

	PECO Energy Company	188

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	190

ITEM 4.	CONTROLS AND PROCEDURES	203

ITEM 4T.	CONTROLS AND PROCEDURES	204

PART II.	OTHER INFORMATION	205

ITEM 1.	LEGAL PROCEEDINGS	205

ITEM 1A.	RISK FACTORS	205

ITEM 6.	EXHIBITS	205

SIGNATURES		207

	Exelon Corporation	207

	Exelon Generation Company, LLC	207

	Commonwealth Edison Company	208

	PECO Energy Company	208

CERTIFICATION EXHIBITS		209

	Exelon Corporation	209, 217

	Exelon Generation Company, LLC	211, 219

	Commonwealth Edison Company	213, 221

	PECO Energy Company	215, 223

FILING FORMAT

This combined Form 10-Q is being filed separately by Exelon Corporation (Exelon), Exelon Generation Company, LLC (Generation), Commonwealth Edison Company (ComEd), and PECO Energy Company (PECO) (collectively, the Registrants). Information contained herein relating to any individual registrant is filed by such registrant on its own behalf. No registrant makes any representation as to information relating to any other registrant.

FORWARD-LOOKING STATEMENTS

Certain of the matters discussed in this Report are forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that are subject to risks and uncertainties. The factors that could cause actual results to differ materially from the forward-looking statements made by a registrant include (a) those factors discussed in the following sections of the Registrants’ 2008 Annual Report on Form 10-K: ITEM 1A. Risk Factors, as updated by Part II, ITEM 1A of this Report; ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, as updated by Part I, ITEM 2. of this Report; and ITEM 8. Financial Statements and Supplementary Data: Note 18, as updated by Part I, Item 1. Financial Statements, 14 of this Report; and (b) other factors discussed herein and in other filings with the United States Securities and Exchange Commission (SEC) by the Registrants. Readers are cautioned not to place undue reliance on these forward-looking statements, which apply only as of the date of this Report. None of the Registrants undertakes any obligation to publicly release any revision to its forward-looking statements to reflect events or circumstances after the date of this Report.

WHERE TO FIND MORE INFORMATION

The public may read and copy any reports or other information that the Registrants file with the SEC at the SEC’s public reference room at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. These documents are also available to the public from commercial document retrieval services, the website maintained by the SEC at www.sec.gov and the Registrants’ websites at www.exeloncorp.com. Information contained on the Registrants’ websites shall not be deemed incorporated into, or to be a part of, this Report.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

EXELON CORPORATION

EXELON CORPORATION AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,
(In millions, except per share data)	2009			2008			2009			2008
Operating revenues	$	4,339		$	5,228		$	13,202		$	14,366
Operating expenses
Purchased power		796			1,327			2,400			3,565
Fuel		404			718			1,640			1,608
Operating and maintenance		1,020			1,110			3,492			3,383
Operating and maintenance for regulatory required programs		19			11			44			17
Depreciation and amortization		485			431			1,360			1,230
Taxes other than income		212			218			592			597

Total operating expenses		2,936			3,815			9,528			10,400

Operating income		1,403			1,413			3,674			3,966

Other income and deductions
Interest expense, net		(170	)		(172	)		(493	)		(532	)
Interest expense to affiliates, net		(18	)		(31	)		(62	)		(106	)
Equity in losses of unconsolidated affiliates and investments		(8	)		(6	)		(21	)		(19	)
Other, net		148			(158	)		367			(256	)

Total other income and deductions		(48	)		(367	)		(209	)		(913	)

Income from continuing operations before income taxes		1,355			1,046			3,465			3,053
Income taxes		598			346			1,339			1,022

Income from continuing operations		757			700			2,126			2,031

Discontinued operations
Loss on disposal of discontinued operations (net of taxes of $0, $0, $0 and $0 for the three and nine months ended September 30, 2009 and 2008, respectively)		—			—			—			(1	)

Loss from discontinued operations, net		—			—			—			(1	)

Net income		757			700			2,126			2,030

Other comprehensive income (loss), net of income taxes
Pension and non-pension postretirement benefit plans:
Prior service benefit reclassified to periodic benefit cost		(3	)		(2	)		(8	)		(7	)
Actuarial loss reclassified to periodic cost		26			16			72			47
Transition obligation reclassified to periodic cost		1			1			2			2
Pension and non-pension postretirement benefit plans valuation adjustment		—			—			28			2
Change in unrealized gain (loss) on cash-flow hedges		(128	)		1,280			177			328
Change in unrealized gain (loss) on marketable securities		2			(1	)		7			(3	)

Other comprehensive income (loss)		(102	)		1,294			278			369

Comprehensive income	$	655		$	1,994		$	2,404		$	2,399

Average shares of common stock outstanding:
Basic		660			658			659			658
Diluted		662			662			661			663

Earnings per average common share — basic:
Income from continuing operations	$	1.15		$	1.06		$	3.22		$	3.09

Net income	$	1.15		$	1.06		$	3.22		$	3.09

Earnings per average common share — diluted:
Income from continuing operations	$	1.14		$	1.06		$	3.21		$	3.06

Net income	$	1.14		$	1.06		$	3.21		$	3.06

Dividends per common share	$	0.53		$	0.50		$	1.58		$	1.50

See the Combined Notes to Consolidated Financial Statements

EXELON CORPORATION AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Nine Months Ended September 30,
(In millions)	2009			2008
Cash flows from operating activities
Net income	$	2,126		$	2,030
Adjustments to reconcile net income to net cash flows provided by operating activities:
Depreciation, amortization and accretion, including nuclear fuel amortization		1,935			1,725
Impairment of long-lived assets		223			—
Deferred income taxes and amortization of investment tax credits		740			111
Net fair value changes related to derivatives and nuclear decommissioning trust funds		(257	)		(115	)
Other non-cash operating activities		464			658
Changes in assets and liabilities:
Accounts receivable		335			226
Inventories		41			(158	)
Accounts payable, accrued expenses and other current liabilities		(463	)		(261	)
Counterparty collateral received, net		380			245
Income taxes		(176	)		457
Pension and non-pension postretirement benefit contributions		(456	)		(103	)
Other assets and liabilities		(263	)		(448	)

Net cash flows provided by operating activities		4,629			4,367

Cash flows from investing activities
Capital expenditures		(2,252	)		(2,282	)
Proceeds from nuclear decommissioning trust fund sales		18,769			14,392
Investment in nuclear decommissioning trust funds		(18,949	)		(14,621	)
Change in restricted cash		32			28
Other investing activities		16			6

Net cash flows used in investing activities		(2,384	)		(2,477	)

Cash flows from financing activities
Changes in short-term debt		(71	)		(431	)
Issuance of long-term debt		1,987			1,969
Retirement of long-term debt		(1,515	)		(1,397	)
Retirement of long-term debt to financing affiliates		(533	)		(862	)
Dividends paid on common stock		(1,038	)		(989	)
Proceeds from employee stock plans		28			122
Purchase of treasury stock		—			(436	)
Purchase of forward contract in relation to certain treasury stock		—			(64	)
Other financing activities		—			69

Net cash flows used in financing activities		(1,142	)		(2,019	)

Increase (decrease) in cash and cash equivalents		1,103			(129	)
Cash and cash equivalents at beginning of period		1,271			311

Cash and cash equivalents at end of period	$	2,374		$	182

See the Combined Notes to Consolidated Financial Statements

EXELON CORPORATION AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)


(In millions)	September 30, 2009		December 31, 2008
ASSETS
Current assets
Cash and cash equivalents	$	2,374	$	1,271
Restricted cash and investments		43		75
Accounts receivable, net
Customer		1,418		1,928
Other		442		324
Mark-to-market derivative assets		467		410
Inventories, net
Fossil fuel		216		315
Materials and supplies		568		528
Other		367		517

Total current assets		5,895		5,368

Property, plant and equipment, net		26,653		25,813
Deferred debits and other assets
Regulatory assets		5,137		5,940
Nuclear decommissioning trust funds		6,502		5,500
Investments		707		670
Investments in affiliates		25		45
Goodwill		2,625		2,625
Mark-to-market derivative assets		482		507
Other		1,476		1,349

Total deferred debits and other assets		16,954		16,636

Total assets	$	49,502	$	47,817

See the Combined Notes to Consolidated Financial Statements

EXELON CORPORATION AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)


(In millions)	September 30, 2009			December 31, 2008
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Short-term borrowings	$	140		$	211
Long-term debt due within one year		873			29
Long-term debt to PECO Energy Transition Trust due within one year		591			319
Accounts payable		1,075			1,416
Mark-to-market derivative liabilities		206			214
Accrued expenses		888			1,151
Deferred income taxes		117			77
Other		554			663

Total current liabilities		4,444			4,080

Long-term debt		11,021			11,397
Long-term debt to PECO Energy Transition Trust		—			805
Long-term debt to other financing trusts		390			390
Deferred credits and other liabilities
Deferred income taxes and unamortized investment tax credits		5,858			4,939
Asset retirement obligations		3,381			3,734
Pension obligations		3,782			4,111
Non-pension postretirement benefit obligations		2,248			2,255
Spent nuclear fuel obligation		1,017			1,015
Regulatory liabilities		3,395			2,520
Mark-to-market derivative liabilities		72			24
Other		1,317			1,413

Total deferred credits and other liabilities		21,070			20,011

Total liabilities		36,925			36,683

Commitments and contingencies
Preferred securities of subsidiary		87			87
Shareholders’ equity
Common stock (No par value, 2,000 shares authorized, 659 and 658 shares outstanding at September 30, 2009 and December 31, 2008, respectively).		8,896			8,816
Treasury stock, at cost (35 and 35 shares held at September 30, 2009 and December 31, 2008, respectively)		(2,338	)		(2,338	)
Retained earnings		7,905			6,820
Accumulated other comprehensive loss, net		(1,973	)		(2,251	)

Total shareholders’ equity		12,490			11,047

Total liabilities and shareholders’ equity	$	49,502		$	47,817

See the Combined Notes to Consolidated Financial Statements

EXELON CORPORATION AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)


(In millions, except issued shares)	Issued Shares	Common Stock		Treasury Stock			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Shareholders’ Equity
Balance, December 31, 2008	692,953	$	8,816	$	(2,338	)	$	6,820		$	(2,251	)	$	11,047
Net income	—		—		—			2,126			—			2,126
Long-term incentive plan activity	1,191		80		—			—			—			80
Common stock dividends declared	—		—		—			(1,041	)		—			(1,041	)
Other comprehensive income, net of income taxes of $199	—		—		—			—			278			278

Balance, September 30, 2009	694,144	$	8,896	$	(2,338	)	$	7,905		$	(1,973	)	$	12,490

See the Combined Notes to Consolidated Financial Statements

EXELON GENERATION COMPANY, LLC

EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,
(In millions)	2009			2008			2009			2008
Operating revenues
Operating revenues	$	1,534		$	2,059		$	4,737		$	5,584
Operating revenues from affiliates		911			1,014			2,687			2,727

Total operating revenues		2,445			3,073			7,424			8,311

Operating expenses
Purchased power		303			528			962			1,704
Fuel		379			669			1,295			1,211
Operating and maintenance		522			557			1,975			1,811
Operating and maintenance from affiliates		70			68			235			212
Depreciation and amortization		74			58			223			202
Taxes other than income		51			53			150			153

Total operating expenses		1,399			1,933			4,840			5,293

Operating income		1,046			1,140			2,584			3,018

Other income and deductions
Interest expense		(24	)		(34	)		(77	)		(108	)
Equity in losses of investments		(1	)		—			(2	)		(1	)
Other, net		192			(164	)		325			(292	)

Total other income and deductions		167			(198	)		246			(401	)

Income from continuing operations before income taxes		1,213			942			2,830			2,617
Income taxes		556			307			1,133			891

Income from continuing operations		657			635			1,697			1,726

Discontinued operations
Loss on disposal of discontinued operations (net of taxes of $0, $0, $0 and $0 for the three and nine months ended September 30, 2009 and 2008, respectively)		—			—			—			(1	)

Loss from discontinued operations, net		—			—			—			(1	)

Net income		657			635			1,697			1,725

Other comprehensive income (loss), net of income taxes
Prior service benefit reclassified to periodic benefit cost related to non-pension, postretirement benefit plans		—			(1	)		—			(1	)
Pension and non-pension postretirement benefit plans valuation adjustment		—			—			—			(3	)
Change in unrealized gain (loss) on cash-flow hedges		(98	)		1,656			559			543

Other comprehensive income (loss)		(98	)		1,655			559			539

Comprehensive income	$	559		$	2,290		$	2,256		$	2,264

See the Combined Notes to Consolidated Financial Statements

EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Nine Months Ended September 30,
(In millions)	2009			2008
Cash flows from operating activities
Net income	$	1,697		$	1,725
Adjustments to reconcile net income to net cash flows provided by operating activities:
Depreciation, amortization and accretion, including nuclear fuel amortization		797			697
Impairment of long-lived assets		223			—
Deferred income taxes and amortization of investment tax credits		674			238
Net fair value changes related to derivatives and nuclear decommissioning trust funds		(257	)		(113	)
Other non-cash operating activities		29			234
Changes in assets and liabilities:
Accounts receivable		147			39
Receivables from and payables to affiliates, net		(30	)		(64	)
Inventories		(8	)		(75	)
Accounts payable, accrued expenses and other current liabilities		(105	)		(93	)
Counterparty collateral received, net		379			247
Income taxes		(22	)		361
Pension and non-pension postretirement benefit contributions		(208	)		(48	)
Other assets and liabilities		(161	)		(363	)

Net cash flows provided by operating activities		3,155			2,785

Cash flows from investing activities
Capital expenditures		(1,330	)		(1,204	)
Proceeds from nuclear decommissioning trust fund sales		18,769			14,392
Investment in nuclear decommissioning trust funds		(18,949	)		(14,621	)
Changes in Exelon intercompany money pool		—			(288	)
Change in restricted cash		14			19
Other investing activities		(1	)		(3	)

Net cash flows used in investing activities		(1,497	)		(1,705	)

Cash flows from financing activities
Issuance of long-term debt		1,546			—
Retirement of long-term debt		(920	)		(12	)
Distribution to member		(1,800	)		(1,244	)
Contribution from member		58			86
Other financing activities		(2	)		2

Net cash flows used in financing activities		(1,118	)		(1,168	)

Increase (decrease) in cash and cash equivalents		540			(88	)
Cash and cash equivalents at beginning of period		1,135			127

Cash and cash equivalents at end of period	$	1,675		$	39

See the Combined Notes to Consolidated Financial Statements

EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)


(In millions)	September 30, 2009		December 31, 2008
ASSETS
Current assets
Cash and cash equivalents	$	1,675	$	1,135
Restricted cash and cash equivalents		8		22
Accounts receivable, net
Customer		450		673
Other		180		108
Mark-to-market derivative assets		467		410
Mark-to-market derivative assets with affiliate		305		111
Receivables from affiliates		268		277
Inventories, net
Fossil fuel		90		143
Materials and supplies		478		435
Other		246		410

Total current assets		4,167		3,724

Property, plant and equipment, net		9,320		8,907
Deferred debits and other assets
Nuclear decommissioning trust funds		6,502		5,500
Investments		43		33
Receivable from affiliate		1		1
Mark-to-market derivative assets		470		490
Mark-to-market derivative assets with affiliate		780		345
Prepaid pension asset		1,046		949
Other		542		406

Total deferred debits and other assets		9,384		7,724

Total assets	$	22,871	$	20,355

See the Combined Notes to Consolidated Financial Statements

EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)


(In millions)	September 30, 2009		December 31, 2008
LIABILITIES AND EQUITY
Current liabilities
Long-term debt due within one year	$	147	$	12
Accounts payable		690		792
Mark-to-market derivative liabilities		206		214
Accrued expenses		559		761
Payables to affiliates		40		78
Deferred income taxes		405		256
Other		232		324

Total current liabilities		2,279		2,437

Long-term debt		2,992		2,502
Deferred credits and other liabilities
Deferred income taxes and unamortized investment tax credits		2,878		1,968
Asset retirement obligations		3,262		3,536
Pension obligations		—		63
Non-pension postretirement benefit obligations		675		576
Spent nuclear fuel obligation		1,017		1,015
Payables to affiliates		2,153		1,336
Mark-to-market derivative liabilities		70		24
Other		445		332

Total deferred credits and other liabilities		10,500		8,850

Total liabilities		15,771		13,789

Commitments and contingencies
Equity
Member’s equity
Membership interest		3,465		3,407
Undistributed earnings		2,220		2,323
Accumulated other comprehensive income, net		1,414		835

Total member’s equity		7,099		6,565
Noncontrolling interest		1		1

Total equity		7,100		6,566

Total liabilities and equity	$	22,871	$	20,355

See the Combined Notes to Consolidated Financial Statements

EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(Unaudited)


	Member’s Equity							Noncontrolling Interest		Total Equity
(In millions)	Membership Interest		Undistributed Earnings			Accumulated Other Comprehensive Income		Noncontrolling Interest		Total Equity
Balance, December 31, 2008	$	3,407	$	2,323		$	835	$	1	$	6,566
Net income		—		1,697			—		—		1,697
Distribution to member		—		(1,800	)		—		—		(1,800	)
Allocation of tax benefit from member		58		—			—		—		58
Transfer of AmerGen pension and non-pension postretirement benefit plans to Exelon, net of income taxes of $17		—		—			20		—		20
Other comprehensive income, net of income taxes of $368		—		—			559		—		559

Balance, September 30, 2009	$	3,465	$	2,220		$	1,414	$	1	$	7,100

See the Combined Notes to Consolidated Financial Statements

COMMONWEALTH EDISON COMPANY

COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,
(In millions)	2009			2008			2009			2008
Operating revenues
Operating revenues	$	1,474		$	1,728		$	4,415		$	4,591
Operating revenues from affiliates		1			1			2			3

Total operating revenues		1,475			1,729			4,417			4,594

Operating expenses
Purchased power		423			655			1,235			1,605
Purchased power from affiliate		353			413			1,138			1,124
Operating and maintenance		234			265			668			701
Operating and maintenance from affiliate		39			41			128			127
Operating and maintenance for regulatory required programs		19			11			44			17
Depreciation and amortization		125			119			371			343
Taxes other than income		79			87			215			227

Total operating expenses		1,272			1,591			3,799			4,144

Operating income		203			138			618			450

Other income and deductions
Interest expense		(79	)		(83	)		(231	)		(261	)
Interest expense to affiliates, net		(3	)		(4	)		(10	)		(18	)
Equity in losses of unconsolidated affiliates		—			(2	)		—			(7	)
Other, net		(19	)		3			67			12

Total other income and deductions		(101	)		(86	)		(174	)		(274	)

Income before income taxes		102			52			444			176
Income taxes		56			19			169			66

Net income		46			33			275			110

Other comprehensive income (loss), net of income taxes
Change in unrealized gain (loss) on marketable securities		2			(1	)		7			(3	)

Other comprehensive income (loss)		2			(1	)		7			(3	)

Comprehensive income	$	48		$	32		$	282		$	107

See the Combined Notes to Consolidated Financial Statements

COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Nine Months Ended September 30,
(In millions)	2009			2008
Cash flows from operating activities
Net income	$	275		$	110
Adjustments to reconcile net income to net cash flows provided by operating activities:
Depreciation, amortization and accretion		372			343
Deferred income taxes and amortization of investment tax credits		205			41
Other non-cash operating activities		235			197
Changes in assets and liabilities:
Accounts receivable		102			(30	)
Inventories		3			(3	)
Accounts payable, accrued expenses and other current liabilities		(171	)		(60	)
Receivables from and payables to affiliates, net		(43	)		53
Income taxes		(84	)		83
Pension and non-pension postretirement benefit contributions		(161	)		(7	)
Other assets and liabilities		(22	)		7

Net cash flows provided by operating activities		711			734

Cash flows from investing activities
Capital expenditures		(605	)		(723	)
Change in restricted cash		(1	)		—
Other investing activities		15			13

Net cash flows used in investing activities		(591	)		(710	)

Cash flows from financing activities
Changes in short-term debt		80			(208	)
Issuance of long-term debt		191			1,325
Retirement of long-term debt		(208	)		(760	)
Retirement of long-term debt to financing trusts		—			(417	)
Dividends paid on common stock		(180	)		—
Contributions from parent		8			13

Net cash flows used in financing activities		(109	)		(47	)

Increase (decrease) in cash and cash equivalents		11			(23	)
Cash and cash equivalents at beginning of period		47			87

Cash and cash equivalents at end of period	$	58		$	64

See the Combined Notes to Consolidated Financial Statements

COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)


(In millions)	September 30, 2009		December 31, 2008
ASSETS
Current assets
Cash and cash equivalents	$	58	$	47
Restricted cash		2		1
Accounts receivable, net
Customer		637		798
Other		147		162
Inventories, net		72		75
Regulatory assets		332		169
Deferred income taxes		58		32
Other		23		25

Total current assets		1,329		1,309

Property, plant and equipment, net		11,947		11,655
Deferred debits and other assets
Regulatory assets		1,191		858
Investments		40		34
Goodwill		2,625		2,625
Receivable from affiliates		1,863		1,291
Prepaid pension asset		931		847
Other		595		618

Total deferred debits and other assets		7,245		6,273

Total assets	$	20,521	$	19,237

See the Combined Notes to Consolidated Financial Statements

COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)


(In millions)	September 30, 2009		December 31, 2008
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Short-term borrowings	$	140	$	60
Long-term debt due within one year		213		17
Accounts payable		201		307
Accrued expenses		265		306
Payables to affiliates		135		179
Customer deposits		127		119
Mark-to-market derivative liability with affiliate		305		111
Other		48		54

Total current liabilities		1,434		1,153

Long-term debt		4,497		4,709
Long-term debt to financing trust		206		206
Deferred credits and other liabilities
Deferred income taxes and unamortized investment tax credits		2,606		2,369
Asset retirement obligations		95		174
Non-pension postretirement benefits obligations		270		203
Regulatory liabilities		3,078		2,440
Mark-to-market derivative liability with affiliate		779		345
Other		711		903

Total deferred credits and other liabilities		7,539		6,434

Total liabilities		13,676		12,502

Commitments and contingencies
Shareholders’ equity
Common stock		1,588		1,588
Other paid-in capital		4,990		4,982
Retained earnings		265		170
Accumulated other comprehensive income (loss), net		2		(5	)

Total shareholders’ equity		6,845		6,735

Total liabilities and shareholders’ equity	$	20,521	$	19,237

See the Combined 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 (Loss) Income			Total Shareholders’ Equity
Balance, December 31, 2008	$	1,588	$	4,982	$	(1,639	)	$	1,809		$	(5	)	$	6,735
Net income		—		—		275			—			—			275
Appropriation of retained earnings for future dividends		—		—		(275	)		275			—			—
Common stock dividends		—		—		—			(180	)		—			(180	)
Allocation of tax benefit from parent		—		8		—			—			—			8
Other comprehensive income, net of income taxes of $(5)		—		—		—			—			7			7

Balance, September 30, 2009	$	1,588	$	4,990	$	(1,639	)	$	1,904		$	2		$	6,845

See the Combined Notes to Consolidated Financial Statements

PECO ENERGY COMPANY

PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,
(In millions)	2009			2008			2009			2008
Operating revenues
Operating revenues	$	1,325		$	1,438		$	4,038		$	4,185
Operating revenues from affiliates		2			3			7			10

Total operating revenues		1,327			1,441			4,045			4,195

Operating expenses
Purchased power		70			93			203			257
Purchased power from affiliate		555			600			1,539			1,602
Fuel		26			50			346			397
Operating and maintenance		132			169			409			487
Operating and maintenance from affiliates		22			23			72			70
Depreciation and amortization		272			243			726			653
Taxes other than income		78			73			213			203

Total operating expenses		1,155			1,251			3,508			3,669

Operating income		172			190			537			526

Other income and deductions
Interest expense		(32	)		(27	)		(93	)		(81	)
Interest expense to affiliates, net		(14	)		(28	)		(52	)		(90	)
Equity in losses of unconsolidated affiliates		(6	)		(4	)		(19	)		(11	)
Other, net		2			2			8			13

Total other income and deductions		(50	)		(57	)		(156	)		(169	)

Income before income taxes		122			133			381			357
Income taxes		30			43			106			111

Net income		92			90			275			246
Preferred security dividends		1			1			3			3

Net income on common stock		91			89			272			243

Comprehensive income, net of income taxes
Net income		92			90			275			246
Other comprehensive loss, net of income taxes
Amortization of realized loss on settled cash flow swaps		(1	)		—			(1	)		(1	)

Other comprehensive loss		(1	)		—			(1	)		(1	)

Comprehensive income	$	91		$	90		$	274		$	245

See the Combined Notes to Consolidated Financial Statements

PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Nine Months Ended September 30,
(In millions)	2009			2008
Cash flows from operating activities
Net income	$	275		$	246
Adjustments to reconcile net income to net cash flows provided by operating activities:
Depreciation, amortization and accretion		726			653
Deferred income taxes and amortization of investment tax credits		(166	)		(178	)
Other non-cash operating activities		107			152
Changes in assets and liabilities:
Accounts receivable		86			(6	)
Inventories		47			(80	)
Accounts payable, accrued expenses and other current liabilities		(154	)		(61	)
Receivables from and payables to affiliates, net		32			6
Income taxes		27			76
Pension and non-pension postretirement benefit contributions		(41	)		(25	)
Other assets and liabilities		(77	)		(16	)

Net cash flows provided by operating activities		862			767

Cash flows from investing activities
Capital expenditures		(267	)		(299	)
Change in restricted cash		2			1
Other investing activities		2			7

Net cash flows used in investing activities		(263	)		(291	)

Cash flows from financing activities
Changes in short-term debt		(95	)		(223	)
Issuance of long-term debt		250			644
Retirement of long-term debt		—			(604	)
Retirement of long-term debt to PECO Energy Transition Trust		(533	)		(445	)
Changes in Exelon intercompany money pool		—			288
Dividends paid on common stock		(247	)		(382	)
Dividends paid on preferred securities		(3	)		(3	)
Repayment of receivable from parent		240			213
Contributions from parent		27			36
Other financing activities		—			1

Net cash flows used in financing activities		(361	)		(475	)

Increase in cash and cash equivalents		238			1
Cash and cash equivalents at beginning of period		39			34

Cash and cash equivalents at end of period	$	277		$	35

See the Combined Notes to Consolidated Financial Statements

PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)


(In millions)	September 30, 2009		December 31, 2008
ASSETS
Current assets
Cash and cash equivalents	$	277	$	39
Restricted cash		—		2
Accounts receivable, net
Customer		331		457
Other		52		39
Inventories, net
Fossil fuel		125		172
Materials and supplies		18		18
Deferred income taxes		70		78
Prepaid utility taxes		43		—
Other		16		14

Total current assets		932		819

Property, plant and equipment, net		5,207		5,074
Deferred debits and other assets
Regulatory assets		2,016		2,597
Investments		18		15
Investments in affiliates		19		39
Receivable from affiliates		292		47
Other		623		578

Total deferred debits and other assets		2,968		3,276

Total assets	$	9,107	$	9,169

See the Combined Notes to Consolidated Financial Statements

PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)


(In millions)	September 30, 2009			December 31, 2008
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Short-term borrowings	$	—		$	95
Long-term debt to PECO Energy Transition Trust due within one year		591			319
Accounts payable		100			204
Accrued expenses		137			120
Payables to affiliates		176			144
Customer deposits		67			74
Other		27			25

Total current liabilities		1,098			981

Long-term debt		2,221			1,971
Long-term debt to PECO Energy Transition Trust		—			805
Long-term debt to other financing trusts		184			184
Deferred credits and other liabilities
Deferred income taxes and unamortized investment tax credits		2,287			2,451
Asset retirement obligations		24			24
Non-pension postretirement benefits obligations		294			283
Regulatory liabilities		295			49
Other		144			152

Total deferred credits and other liabilities		3,044			2,959

Total liabilities		6,547			6,900

Commitments and contingencies
Preferred securities		87			87
Shareholders’ equity
Common stock		2,318			2,291
Receivable from parent		(260	)		(500	)
Retained earnings		414			389
Accumulated other comprehensive income, net		1			2

Total shareholders’ equity		2,473			2,182

Total liabilities and shareholders’ equity	$	9,107		$	9,169

See the Combined Notes to Consolidated Financial Statements

PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)


(In millions)	Common Stock		Receivable from Parent			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Shareholders’ Equity
Balance, December 31, 2008	$	2,291	$	(500	)	$	389		$	2		$	2,182
Net income		—		—			275			—			275
Common stock dividends		—		—			(247	)		—			(247	)
Preferred security dividends		—		—			(3	)		—			(3	)
Repayment of receivable from parent		—		240			—			—			240
Allocation of tax benefit from parent		27		—			—			—			27
Other comprehensive loss, net of income taxes of $0		—		—			—			(1	)		(1	)

Balance, September 30, 2009	$	2,318	$	(260	)	$	414		$	1		$	2,473

See the Combined Notes to Consolidated Financial Statements

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

(Dollars in millions, except per share data, unless otherwise noted)

1. Basis of Presentation (Exelon, Generation, ComEd and PECO)

Exelon Corporation (Exelon) is a utility services holding company engaged, through its subsidiaries, in the generation and energy delivery businesses. The generation business consists of the electric generating facilities, the wholesale energy marketing operations and competitive retail supply operations of Exelon Generation Company, LLC (Generation). The energy delivery businesses include the purchase and regulated retail sale of electricity and the provision of distribution and transmission services by Commonwealth Edison Company (ComEd) in northern Illinois, including the City of Chicago, and by PECO Energy Company (PECO) in southeastern Pennsylvania, including the City of Philadelphia, and the purchase and regulated retail sale of natural gas and the provision of distribution services by PECO in the Pennsylvania counties surrounding the City of Philadelphia.

Exelon’s corporate operations, some of which are performed through its business services subsidiary, Exelon Business Services Company, LLC (BSC), provide Exelon’s subsidiaries with a variety of support services at cost, including legal, human resources, financial, information technology and supply management services. The costs of BSC, including support services, are directly charged or allocated to the applicable subsidiaries using a cost-causative allocation method. Corporate governance type costs that cannot be directly assigned are allocated based on a Modified Massachusetts formula, which is a method that utilizes a combination of gross revenues, total assets, and direct labor costs for the allocation base. The results of Exelon’s corporate operations are presented as “Other” within the consolidated financial statements and include intercompany eliminations unless otherwise disclosed.

Exelon owns 100% of all of its significant consolidated subsidiaries, either directly or indirectly, except for ComEd, of which Exelon owns more than 99%, and PECO, of which Exelon owns 100% of the common stock but none of PECO’s preferred securities. Exelon has reflected the third-party interests in ComEd, which totaled less than $1 million at September 30, 2009, as equity, and PECO’s preferred securities as preferred securities of subsidiary in its consolidated financial statements.

Generation owns 100% of all of its significant consolidated subsidiaries, either directly or indirectly, except for Exelon SHC, LLC, of which Generation owns 99% and the remaining 1% is indirectly owned by Exelon, which is eliminated in Exelon’s consolidated financial statements. AmerGen Energy Company, LLC (AmerGen), formerly a wholly owned subsidiary of Generation through January 8, 2009, owned and operated the Clinton Nuclear Power Station (Clinton), Three Mile Island (TMI) Unit No. 1 and the Oyster Creek Generating Station (Oyster Creek). Effective January 8, 2009, AmerGen was dissolved and the operating licenses for Clinton, TMI and Oyster Creek were transferred to Generation, which continues to operate those plants.

Each of Generation’s, ComEd’s and PECO’s consolidated financial statements includes the accounts of their subsidiaries. All intercompany transactions have been eliminated.

The accompanying consolidated financial statements as of September 30, 2009 and 2008 and for the three and nine months then ended are unaudited but, in the opinion of the management of each of Exelon, Generation, ComEd and PECO (collectively, Registrants), 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. Certain prior year amounts in Operating Activities in Exelon’s, Generation’s, ComEd’s, and PECO’s

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)

Consolidated Statements of Cash Flows, in Financing Activities in PECO’s Consolidated Statement of Cash Flows and in Exelon’s and ComEd’s Consolidated Statements of Operations have been reclassified between line items for comparative purposes. The reclassifications did not affect net income or cash flows from operating activities of the Registrants. The December 31, 2008 Consolidated Balance Sheets were taken from audited financial statements. The Registrants performed an evaluation of subsequent events for the accompanying financial statements and notes included in Part 1, ITEM I of this report through October 23, 2009, the date this Report was issued, to determine whether the circumstances warranted recognition and disclosure of those events or transactions in the financial statements as of September 30, 2009. These Combined 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 Exelon, Generation, ComEd and PECO included in ITEM 8 of their 2008 Annual Report on Form 10-K.

Variable Interest Entities (Exelon, Generation, ComEd and PECO)

Exelon’s consolidated financial statements include the accounts of entities in which Exelon has a controlling financial interest, other than certain financing trusts of ComEd and PECO, and Generation’s and PECO’s proportionate interests in jointly owned electric utility property, after the elimination of intercompany transactions. A controlling financial interest is evidenced by either a voting interest greater than 50% or a risk and rewards model that identifies Exelon or one of its subsidiaries as the primary beneficiary of the variable interest entity (VIE). Investments and joint ventures in which Exelon does not have a controlling financial interest and certain financing trusts of ComEd and PECO are accounted for under the equity method of accounting.

Generation enters into power purchase agreements (PPAs) with the objective of obtaining low-cost energy supply sources to meet its physical delivery obligations to customers, including ComEd and PECO. Several of Generation’s long-term PPAs have been determined to be operating leases, which are not considered variable interests. Generation’s PPAs that are not deemed to be operating leases are typically either non-derivatives or derivatives that qualify for the normal purchases and normal sales scope exception and are not marked-to-market. Generation has evaluated these PPAs and determined that it either has no variable interest in the PPA counterparties or, where Generation does have variable interests in PPA counterparties, it is not the primary beneficiary of those counterparties and, therefore, consolidation is not required. These conclusions are based on the following factors: the PPAs do not have residual value guarantees and purchase options, Generation has no equity investments in the counterparties and does not incur expected losses related to the loss of plant value, the PPAs were based on market terms at their inception and Generation does not bear any operational risk related to the plants. Generation’s financial exposure to its PPAs relates to its fixed capacity payments, which are disclosed in Note 14 — Commitments and Contingencies.

The financing trusts of ComEd, namely ComEd Financing II, ComEd Financing III, ComEd Funding LLC (ComEd Funding) and ComEd Transitional Funding Trust (CTFT), and the financing trusts of PECO, namely PECO Trust III, PECO Energy Capital Trust IV (PECO Trust IV) and PECO Energy Transition Trust (PETT), are not consolidated in Exelon’s, ComEd’s and PECO’s financial statements. ComEd Funding, CTFT and PETT were created for the sole purpose of issuing debt obligations to securitize intangible transition property of ComEd

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)

and PECO; and the other entities were created to issue mandatorily redeemable trust preferred securities. As of September 30, 2009, the only remaining VIE for ComEd is ComEd Financing III, as the other entities were dissolved during 2008.

ComEd and PECO have concluded that they are not the primary beneficiaries of their respective trusts because investors in the trusts’ securities, not ComEd and PECO, bear the risk of loss related to those securities. ComEd and PECO, as the sponsors of the financing trusts, are obligated to pay the operating expenses of the trusts. ComEd’s and PECO’s balance sheets include payable to affiliate amounts due to their respective financing trusts as well as investments in their respective trusts.

The maximum exposure to loss as a result of ComEd’s and PECO’s involvement with the financing trusts was $6 million and $19 million, respectively, at September 30, 2009 and $6 million and $39 million, respectively, at December 31, 2008. ComEd’s and PECO’s maximum exposure to loss is determined based on the current carrying value of investments made in VIEs. ComEd’s and PECO’s estimated range of exposure to loss related to the financing trusts is any amount up to the current carrying value of investments made in the VIEs. ComEd and PECO have not provided any non-contractually required financial support to the trusts during the nine months ended September 30, 2009 and 2008.

2. New Accounting Pronouncements (Exelon, Generation, ComEd and PECO)

Noncontrolling Interests in Consolidated Financial Statements

In December 2007, the FASB issued authoritative guidance clarifying 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. This guidance requires that a change 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. This guidance was applied prospectively as of January 1, 2009, except for the presentation and disclosure requirements, which were applied retrospectively for all periods presented.

The adoption had no impact on Exelon’s consolidated financial statements. Generation reclassified its noncontrolling interest of a consolidated subsidiary from mezzanine equity to equity in its Consolidated Balance Sheets and Statement of Changes in Equity for all periods presented. The noncontrolling interest is eliminated in Exelon’s Consolidated financial statements as it is owned by Exelon.

PECO reclassified preferred securities from shareholders’ equity to mezzanine equity within its Consolidated Balance Sheets for all periods presented, and separately reflects its preferred security dividends on its Statement of Operations. On Exelon’s Statement of Operations and Comprehensive Income, the dividends on PECO’s preferred securities are included in interest expense and have not been reflected separately as the amounts are not considered significant.

Business Combinations

In December 2007, the FASB revised the authoritative guidance for business combinations. Transaction costs are now required to be expensed as incurred and adjustments to the acquired entity’s deferred tax assets and uncertain tax position balances occurring outside the measurement period are recorded as a component of income tax expense, rather than goodwill, among other changes.

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)

In April 2009, the FASB revised the authoritative guidance related to the initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. Generally, assets acquired and liabilities assumed in a business combination that arise from contingencies must be recognized at fair value at the acquisition date. This guidance became effective for the Registrants as of January 1, 2009. As this guidance is applied prospectively to business combinations with an acquisition date on or after the date the guidance became effective, the impact to the Registrants cannot be determined until the transactions occur. No such transactions have occurred during 2009.

Derivative Instrument and Hedging Activity Disclosures

In March 2008, the FASB amended and expanded the disclosure requirements related to derivative instruments and hedging activities by requiring enhanced disclosures about how and why an entity uses derivative instruments, how an entity accounts for derivative instruments and related hedged items and how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. The revised guidance 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. This guidance was effective for the Registrants as of January 1, 2009. Since this guidance provides only disclosure requirements, the adoption of this standard did not impact the Registrants’ results of operations, cash flows or financial positions. See Note 8 — Derivative Financial Instruments for further information.

Pension and Other Postretirement Benefit Plan Asset Disclosures

In December 2008, the FASB issued authoritative guidance requiring additional disclosures for employers’ pension and other postretirement benefit plan assets. This guidance requires employers to disclose information about fair value measurements of plan assets, the investment policies and strategies for the major categories of plan assets, and significant concentrations of risk within plan assets. This guidance will be effective for the Registrants as of December 31, 2009. As this guidance provides only disclosure requirements, the adoption of this standard will not impact the Registrants’ results of operations, cash flows or financial positions.

Fair Value Measurements

In February 2008, the FASB delayed the effective date of fair value measurement and disclosure guidance for all nonrecurring fair value measurements of nonfinancial assets and liabilities until fiscal years beginning after November 15, 2008. The delayed guidance became effective for all nonrecurring nonfinancial assets and liabilities of the Registrants as of January 1, 2009. See Note 6 — Fair Value of Assets and Liabilities for further information.

In April 2009, the FASB issued authoritative guidance clarifying that fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants under current market conditions. This new guidance requires an evaluation of whether there has been a significant decrease in the volume and level of activity for the asset or liability in relation to normal market activity for the asset or liability. If there has, transactions or quoted prices may not be indicative of fair value and an adjustment may need to be made to those prices to estimate fair value. Additionally, an entity must consider whether the observed transaction was orderly (that is, not distressed or forced). If the transaction was orderly, the

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)

obtained price can be considered a relevant observable input for determining fair value. If the transaction is not orderly, other valuation techniques must be used when estimating fair value. This guidance was adopted for the period ending June 30, 2009. The adoption of this guidance did not have a material impact to the Registrants’ results of operations, cash flows or financial positions.

In August 2009, the FASB issued authoritative guidance clarifying the measurement of the fair value of a liability in circumstances when a quoted price in an active market for an identical liability is not available. The guidance emphasizes that entities should maximize the use of observable inputs in the absence of quoted prices when measuring the fair value of liabilities. This guidance became effective for the Registrants as of October 1, 2009, and did not have a material impact on their financial statements.

In September 2009, the FASB issued authoritative guidance that provides further clarification for measuring the fair value of investments in entities that meet the FASB’s definition of an investment company. This guidance permits a company to estimate the fair value of an investment using the net asset value per share of the investment if the net asset value is determined in accordance with the FASB’s guidance for investment companies as of the company’s measurement date. This creates a practical expedient to determining a fair value estimate and certain attributes of the investment (such as redemption restrictions) will not be considered in measuring fair value. Additionally, companies with investments within the scope of this guidance must disclose additional information related to the nature and risks of the investments. This guidance will become effective for the Registrants as of December 31, 2009 and is required to be applied prospectively. Exelon’s pension and other postretirement plan assets and Generation’s nuclear decommissioning trust fund investments contain commingled funds, which are within the scope of this guidance. However, as the fair value of the commingled funds is already determined based on net asset values per fund share, this guidance will not have a material impact on the Registrants’ results of operations, cash flows, or financial positions. See Note 6 — Fair Value of Assets and Liabilities for further information regarding the fair value of Generation’s nuclear decommissioning trust fund investments.

Fair Value of Financial Instruments Disclosures

In April 2009, the FASB issued revised authoritative guidance requiring disclosures about fair value of financial instruments, currently provided annually, to be included in interim financial statements. This guidance was adopted by the Registrants for the period ended June 30, 2009. Since this guidance provides only disclosure requirements, the adoption of this standard did not impact the Registrants’ results of operations, cash flows or financial positions. See Note 6 — Fair Value of Assets and Liabilities for further information.

Recognition and Presentation of Other-Than-Temporary Impairments

In April 2009, the FASB amended authoritative guidance related to accounting for certain investments in debt and equity securities and accounting for certain investments held by not-for-profit organizations. This revised guidance establishes a new method of recognizing and reporting other-than-temporary impairments of debt securities. If it is more likely than not that an impaired debt security will be sold before the recovery of its cost basis, either due to the investor’s intent to sell or because it will be required to sell the security, the entire impairment is recognized in earnings. Otherwise, only the portion of the impaired debt security related to estimated credit losses is recognized in earnings, while the remainder of the impairment is recorded in other comprehensive income and recognized over the remaining life of the debt security. In addition, the guidance

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)

expands the presentation and disclosure requirements for other-than-temporary impairments for both debt and equity securities. This guidance was adopted for the period ended June 30, 2009 and did not have a material impact on the Registrants’ results of operations, cash flows, or financial positions. See Note 6 — Fair Value of Assets and Liabilities for further information.

Subsequent Events

In May 2009, the FASB issued authoritative guidance which incorporates the principles and accounting guidance for recognizing and disclosing subsequent events that originated as auditing standards into the body of authoritative literature issued by the FASB, and prescribes disclosures regarding the date through which subsequent events have been evaluated. The Registrants are required to evaluate subsequent events through the date the financial statements are issued. This guidance was effective for the Registrants for the period ended June 30, 2009. Since this guidance is not intended to significantly change the current practice of reporting subsequent events, it did not have an impact on the Registrants’ results of operations, cash flows or financial positions. See Note 1 — Basis of Presentation for further information.

Transfers of Financial Assets

In June 2009, the FASB issued authoritative guidance amending the accounting for the transfers of financial assets. Key provisions include (i) the removal of the concept of qualifying special purpose entities, (ii) the introduction of the concept of a participating interest, in circumstances in which a portion of a financial asset has been transferred, and (iii) the requirement that to qualify for sale accounting, the transferor must evaluate whether it maintains effective control over transferred financial assets either directly or indirectly. Furthermore, this guidance requires enhanced disclosures about transfers of financial assets and a transferor’s continuing involvement. This guidance is effective for the Registrants beginning January 1, 2010, and is required to be applied prospectively. Currently, PECO’s agreement related to the sale of accounts receivable is accounted for as a sale. Under the new guidance, this agreement will be accounted for as a secured borrowing. As a result, beginning in the first quarter of 2010, the transferred accounts receivable of $225 million under this agreement will be recorded on PECO’s balance sheet with an offsetting short-term note payable of $225 million.

Consolidation of Variable Interest Entities

In June 2009, the FASB issued authoritative guidance to amend the manner in which entities evaluate whether consolidation is required for VIEs. The model for determining which enterprise has a controlling financial interest and is the primary beneficiary of a VIE has changed significantly under the new guidance. Previously, variable interest holders had to determine whether they had a controlling financial interest in a VIE based on a quantitative analysis of the expected gains and/or losses of the entity. In contrast, the new guidance requires an enterprise with a variable interest in a VIE to qualitatively assess whether it has a controlling financial interest in the entity, and if so, whether it is the primary beneficiary. Furthermore, this guidance requires that companies continually evaluate VIEs for consolidation, rather than assessing based upon the occurrence of triggering events. This revised guidance also requires enhanced disclosures about how a company’s involvement with a VIE affects its financial statements and exposure to risks. This guidance is effective for the Registrants beginning January 1, 2010. The Registrants are currently assessing the impacts this may have on their financial statements. Information regarding the Registrants’ involvement with VIEs is included in Note 1 — Basis of Presentation.

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)

Accounting Standards Codification

In June 2009, the FASB issued authoritative guidance which replaced the previous hierarchy of GAAP and establishes the FASB Codification as the single source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. SEC rules and interpretive releases are also sources of authoritative GAAP for SEC registrants. This guidance modifies the GAAP hierarchy to include only two levels of GAAP: authoritative and nonauthoritative. This guidance was effective for the Registrants as of September 30, 2009. The adoption of this guidance did not impact the Registrants’ results of operations, cash flows or financial positions since the FASB Codification is not intended to change or alter existing GAAP.

Revenue Arrangements with Multiple Deliverables

In October 2009, the FASB issued authoritative guidance that amends existing guidance for identifying separate deliverables in a revenue-generating transaction where multiple deliverables exist, and provides guidance for allocating and recognizing revenue based on those separate deliverables. The guidance is expected to result in more multiple-deliverable arrangements being separable than under current guidance. This guidance is effective for the Registrants beginning on January 1, 2011 and is required to be applied prospectively to new or significantly modified revenue arrangements. The Registrants are currently assessing the impacts this guidance may have on their financial statements.

3. Regulatory Issues (Exelon, Generation, ComEd and PECO)

Illinois Settlement Agreement (Exelon, Generation and ComEd). In July 2007, following extensive discussions with legislative leaders in Illinois, ComEd, 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 Exelon 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 signed into law in August 2007. The Illinois Settlement and the Illinois Settlement Legislation provide for the following, among other things:

Rate Relief Programs

•

Various Illinois electric utilities, their affiliates, and generators of electricity in Illinois agreed to contribute approximately $1 billion over a period of four years (2007-2010) to programs to provide rate relief to Illinois electricity customers and funding for the Illinois Power Agency (IPA) created by the Illinois Settlement Legislation. ComEd and Generation committed to contributing $811 million to rate relief programs over the four year period and partial funding for the IPA. ComEd committed to issue $64 million in rate relief credits to customers or to fund various programs to assist customers. Generation committed to contribute an aggregate of $747 million, consisting of $435 million to pay ComEd for rate relief programs for ComEd customers, $307.5 million for rate relief programs for customers of other Illinois utilities and $4.5 million for partially funding operations of the IPA. The contributions are recognized in the financial statements of Generation and ComEd as rate relief credits are applied to customer bills by ComEd and other Illinois utilities, or as operating expenses associated with the programs are incurred.

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)

During the three and nine months ended September 30, 2009, Generation and ComEd recognized net costs from their contributions pursuant to the Illinois Settlement in their Consolidated Statements of Operations as follows:


Three Months Ended September 30, 2009	Generation		ComEd		Total Credits Issued to ComEd Customers
Credits to ComEd customers(a)	$	1	$	2	$	3
Credits to other Illinois utilities’ customers(a)		13		n/a		n/a
Other rate relief programs(b)		—		1		n/a

Total incurred costs	$	14	$	3	$	3

(a)	Recorded as a reduction in operating revenues

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


Nine Months Ended September 30, 2009	Generation		ComEd		Total Credits Issued to ComEd Customers
Credits to ComEd customers(a)	$	39	$	4	$	43
Credits to other Illinois utilities’ customers(a)		39		n/a		n/a
Other rate relief programs(b)		—		2		n/a

Total incurred costs	$	78	$	6	$	43

(a)	Recorded as a reduction in operating revenues

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

During the three and nine months ended September 30, 2008, Generation and ComEd recognized net costs from their contributions pursuant to the Illinois Settlement in their respective Consolidated Statements of Operations as follows:


Three Months Ended September 30, 2008	Generation		ComEd		Total Credits Issued to ComEd Customers
Credits to ComEd customers(a)	$	20	$	2	$	22
Credits to other Illinois utilities’ customers(a)		20		n/a		n/a

Total incurred costs	$	40	$	2	$	22

(a)	Recorded as a reduction in operating revenues.


Nine Months Ended September 30, 2008	Generation		ComEd		Total Credits Issued to ComEd Customers
Credits to ComEd customers(a)	$	116	$	5	$	121
Credits to other Illinois utilities’ customers(a)		68		n/a		n/a
Other rate relief programs(b)		—		4		n/a

Total incurred costs	$	184	$	9	$	121

(a)	Recorded as a reduction in operating revenues.

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

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)

As of September 30, 2009, Generation’s remaining costs to be recognized related to the rate relief commitment are $40 million, consisting of $19 million related to programs for ComEd customers and $21 million for programs for customers of other Illinois utilities. ComEd’s remaining costs to be recognized related to the rate relief commitment are $4 million as of September 30, 2009.

Energy Efficiency and Renewable Energy

•

Electric utilities in Illinois are required to include cost-effective energy efficiency resources in their plans to meet an incremental annual program energy savings requirement of 0.2% of energy delivered to retail customers for the year ended June 1, 2009, which is increasing annually to 2% of energy delivered in the year commencing June 1, 2015 and each year thereafter. Additionally, during the ten year period that began June 1, 2008, 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). In February 2008, the ICC issued an order approving substantially all of ComEd’s Energy Efficiency and Demand Response Plan, including cost recovery. This plan began in June 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. During the three and nine months ended September 30, 2009, expenses related to energy efficiency and demand response programs consisted of $18 million and $41 million, respectively. During the three and nine months ended September 30, 2008, expenses related to these programs consisted of $11 million and $16 million, respectively.

•

Starting June 1, 2008, utilities have been required to procure 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. ComEd is also required to acquire amounts of renewable energy resources that will cumulatively increase this percentage to at least 10% by June 1, 2015, with an ultimate target of at least 25% by June 1, 2025, subject to customer rate cap limitations. All goals are subject to rate impact criteria set forth in the Illinois Settlement Legislation. Under a May 2008 ICC-approved request for proposal (RFP), ComEd procured renewable energy credits (RECs) for the period June 2008 through May 2009. On May 13, 2009, the ICC approved the results of an RFP to procure RECs for the period June 2009 through May 2010. ComEd currently retires all RECs immediately upon purchase. Since June 2008, ComEd recovers procurement costs of RECs through rates. See Note 14 — Commitments and Contingencies for further information regarding ComEd’s procurement of RECs.

Illinois Procurement Proceedings (Exelon, Generation and ComEd). Beginning January 1, 2007, ComEd procured 100% of its load through staggered supplier forward contracts with various suppliers, including Generation. The supplier forward contracts resulted from an ICC-approved “reverse-auction” competitive bidding process, which permitted ComEd to recover its electricity procurement costs from retail customers without markup. The price for full requirements electric supply that resulted from the first auction was fixed through May 2008, at which time the auction contracts for one-third of the load expired. The auction contracts for an additional one-third of the load expired in May 2009 with auction contracts for the final third of the load expiring in May 2010.

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)

The IPA, under the oversight of the ICC, participates in the design of an electricity supply portfolio for ComEd and administers a competitive process under which ComEd procures its electricity supply resources for deliveries in the supply period which began in June 2009. During the interim, the ICC approved a plan under which ComEd procured power for the period from June 2008 through May 2009.

In March 2008, ComEd completed its first RFP 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 represented approximately 14% of its expected energy needs from June 2008 through May 2009. For the same period, approximately 19% of ComEd’s energy load was purchased on the spot market and was hedged with a variable to fixed financial swap with Generation. The remaining energy for the period came from the supplier forward contracts. See Note 8 — Derivative Financial Instruments for further discussion on the financial swap derivative.

The ICC has also initiated a proceeding to reconcile the actual costs of power purchased in the January 2007 through May 2008 period with the costs for power that flowed through ComEd’s tariffs and were collected from customers. Since the Illinois Settlement Legislation has already deemed such costs to be prudently incurred, the reconciliation proceeding is not expected to have a significant impact on ComEd.

On January 7, 2009, the ICC approved the IPA’s plan for procurement of ComEd’s expected energy requirements from June 2009 through May 2010, which includes approximately 38% of ComEd’s expected energy requirements purchased through the spot market with a significant portion of the purchases hedged by the financial swap contract with Generation, 33% being met through existing supplier forward contracts and the remaining energy requirements being met through the standard products purchased as a result of the 2009 RFP process completed in May 2009. Approximately 8% of ComEd’s energy requirements from June 2010 through May 2011 were also procured through the contracts entered into as a result of the 2009 RFP process. See Note 8 — Derivative Financial Instruments for further discussion on the financial swap derivative, and Note 14 — Commitments and Contingencies for further information regarding ComEd’s procurement of energy.

On September 30, 2009, the IPA filed its revised procurement plan with the ICC. Similar to the plan approved by the ICC in January 2009, the IPA’s current plan calls for the procurement of standard block energy products but also includes two additional provisions: first, a procurement of approximately 3.5% of ComEd’s fixed-price load requirements from renewable energy resources utilizing long-term contracts and, second, the procurement of demand response resources as an alternative to traditional capacity. The costs of these contracts are expected to be fully recoverable from customers. The ICC is anticipated to rule on the plan by the end of 2009.

2005 Rate Case (Exelon and ComEd). In August 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 appealed the rate order to the courts. In September 2009, the Appellate Court of Illinois affirmed the ICC’s order and denied the appeals. Several parties have asked the Appellate Court to rehear some of the rate design issues addressed in the opinion. ComEd is considering its options regarding further proceedings.

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)

Original Cost Audit (Exelon and ComEd). In connection with ComEd’s 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 completed the audit. The consulting firm’s results of the audit were reported to the ICC in April 2008, which presented its findings regarding accounting methodology, documentation and other matters, along with proposed adjustments. The audit report recommended gross plant disallowances of approximately $350 million, before reflecting accumulated depreciation. The basis for the disallowance recommendation on approximately $80 million of the costs was that the assets were misclassified between ComEd’s distribution and transmission operations; ComEd reclassified these costs in September 2007 and they were reflected correctly in ComEd’s rate case filed in October 2007 (2007 Rate Case).

In April 2008, ComEd and the ICC Staff reached a stipulation (the stipulation) regarding various portions of contested issues in the Original Cost Audit as well as the 2007 Rate Case and agreed to make various joint recommendations to the ICC in the 2007 Rate Case. In September 2008, the ICC issued an order in the 2007 Rate Case, which reflected the joint recommendations made by the ICC Staff and ComEd and required ComEd to incur a charge of approximately $19 million (pre-tax) related to various items identified in the Original Cost Audit.

The ICC opened a proceeding on the Original Cost Audit in May 2008. Under the terms of the stipulation, the ICC Staff will not advocate that any of the proposed adjustments in the audit report be adopted other than those reflected in the 2007 Rate Case; however, 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. The Illinois Attorney General submitted testimony and legal briefs suggesting that ComEd improperly changed the way it capitalized certain cable faults during the rate freeze period and therefore the rate base should be reduced by $121 million and ComEd should refund at least $42 million to customers. ComEd filed testimony and legal briefs disputing these contentions and the ICC Staff filed testimony and briefs generally consistent with ComEd’s position and suggesting that no adjustment is warranted and a refund is improper under existing law. No other party made any recommendations regarding the Original Cost Audit. ComEd believes the Illinois Attorney General’s position is meritless. However, if it is accepted by the ICC, it could result in a material disallowance and related write-off of a portion of the original cost of ComEd’s delivery service assets and a refund to customers as described above.

2007 Rate Case (Exelon and ComEd). ComEd filed the 2007 Rate Case with the ICC for approval to increase its delivery service revenue requirement by approximately $360 million. The ICC issued an order in the rate case approving a $274 million increase in ComEd’s annual revenue requirement, which became effective in September 2008. ComEd and several other parties have filed appeals of the rate order with the courts. ComEd cannot predict the timing of resolution or the results of the appeals. In the event the order is ultimately changed, the changes are expected to be prospective.

The 2007 Rate Case filing also included a system modernization rider, which the ICC approved for the limited purpose of implementing a pilot program for Advanced Metering Infrastructure (AMI). The rider permits investments in AMI to be reflected in rates on a quarterly basis instead of waiting for the next rate case to begin recovery. On June 1, 2009, ComEd filed its proposed AMI pilot program with the ICC, which included revisions to the system modernization rider. On October 14, 2009 the ICC approved ComEd’s proposed AMI pilot program, with minor modifications, and recovery of substantially all program costs under the rider. The AMI pilot program allows ComEd to study the costs and benefits related to automated metering in terms of remote disconnect and outage restoration. In addition, the program allows customers the ability to manage energy use, improve energy efficiency and lower energy bills. ComEd cannot estimate the costs of a full system-wide implementation of AMI.

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)

On August 4, 2009, ComEd filed a request for $175 million of matching Federal stimulus grants with the Department of Energy (DOE) under the American Recovery & Reinvestment Act to help finance AMI and Smart Grid technologies in Illinois. If the request is approved and fully funded by the DOE, ComEd would expand its original AMI pilot proposal, including more than doubling the number of customers receiving new smart meters. The DOE is expected to select projects for funding later this year. No assurance can be given that ComEd will receive any Federal matching funds. On September 2, 2009, ComEd submitted a petition to the ICC requesting recovery of the remaining distribution related costs of the stimulus projects after receiving the matching funds from the DOE.

Transmission Rate Case (Exelon and ComEd). ComEd’s transmission rates are established based on a formula that was approved by FERC in January 2008. FERC’s order 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.

ComEd’s most recent annual formula rate update filed in May 2009 reflects actual 2008 expenses and investments plus forecasted 2009 capital additions. The update resulted in a revenue requirement of $436 million resulting in an increase of approximately $6 million from the 2008 revenue requirement, plus an additional $4 million related to the 2008 true-up of actual costs. The 2009 revenue requirement of $440 million, which includes the 2008 true-up, became effective June 1, 2009 and is recorded over the period extending through May 31, 2010. The regulatory asset associated with the true-up is being amortized as the associated revenues are received. ComEd will continue to reflect its best estimate of its anticipated true-up in the financial statements.

Illinois Legislation for Recovery of Uncollectible Accounts (Exelon and ComEd). Comprehensive legislation has been enacted in Illinois that provides utilities the ability to adjust their rates annually through a rider mechanism to reflect the increases or decreases in annual uncollectible accounts expenses starting with 2008 and prospectively. ComEd under-collected approximately $26 million during 2008 and approximately $32 million during the nine months ended September 30, 2009. On September 8, 2009, ComEd filed a proposed tariff in accordance with the legislation. The ICC has 180 days to approve, or modify and approve, ComEd’s proposed tariff. ComEd does not know what modifications or conditions, if any, the ICC may include in ComEd’s proposed tariff at this time.

Upon ICC approval of a satisfactory tariff, ComEd will be required to make a one-time contribution of approximately $10 million to the Supplemental Low-Income Energy Assistance Fund (the Fund). The Fund is used to assist low-income residential customers. As one way to assist such customers, the legislation creates a new percentage of income program (PIP) that includes an arrearage reduction component for participating customers. The program will be paid for from the Fund and other state monies.

ComEd currently anticipates that the potential benefit and the $10 million one-time charge will not be recorded until approval of the tariff by the ICC is deemed probable. If approval of the tariff is deemed probable, ComEd will record a regulatory asset and an offsetting reduction in operating and maintenance expense for the cumulative under collections from 2008 through the date of recognition. Recovery of the initial regulatory asset would take place over an approximate 17-month time frame assuming the tariff is approved by February 1, 2010.

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)

Pennsylvania Gas Distribution Rate Case (Exelon and PECO). In October 2008, the Pennsylvania Public Utility Commission (PAPUC) voted to approve the joint settlement related to PECO’s March 2008 filing providing for an increase of $77 million to its annual natural gas distribution revenue. As part of the settlement, PECO agreed to enhance its low-income programs as well as provide funding for new energy-efficiency programs to help customers manage their energy usage and gas bills. Additionally, PECO agreed not to file a new base rate case for natural gas distribution service before January 1, 2010. The approved rate adjustment became effective on January 1, 2009.

Pennsylvania Transition-Related Legislative and Regulatory Matters (Exelon, Generation and PECO). In Pennsylvania, despite the recent decline in wholesale electricity market prices, there has been some continuing interest from elected officials in mitigating the potential impact of electric generation price increases on customers when rate caps expire. While PECO’s retail electric generation rate cap transition period does not end until December 31, 2010, transition periods have ended for six other Pennsylvania electric distribution companies, and, in most instances, post-transition electric generation price increases occurred. Over the past few years, elected officials in Pennsylvania have worked on developing legislation to address concerns over post-transition electric generation price increases. Measures suggested by legislators include rate-increase deferrals and phase-ins, rate-cap extensions, a generation tax and contributions of value by Pennsylvania utility companies toward rate-relief programs.

On March 12, 2009, the PAPUC approved the settlement of PECO’s Market Rate Transition Phase-In Program. The program allows eligible residential and small-business electric-service customers to transition to market-priced generation through pre-payments made through 2010 that will accrue interest at the statutory rate of 6% and then be applied as credits to their bills in 2011 and 2012.

On June 9, 2009, the PAPUC entered an order instituting an investigation into whether PECO’s nuclear decommissioning cost adjustment clause, which is a mechanism that allows PECO to recover costs from customers for the decommissioning of seven former PECO nuclear units now owned by Generation, should continue after the termination of PECO’s competitive transition cost collections on December 31, 2010, and assigning the matter for alternative dispute resolution or the prompt scheduling of such hearings as may be necessary. On October 14, 2009, a prehearing conference was held and PECO agreed to report to the administrative law judge on settlement progress no later than November 20, 2009. See Note 12 — Asset Retirement Obligations and Spent Nuclear Fuel Storage for additional information.

Pennsylvania Procurement Proceedings (Exelon and PECO). On June 2, 2009, the PAPUC entered a formal opinion and order approving the settlement of PECO’s default service provider program (DSP Program), under which PECO will provide default electric service following the expiration of electric generation rate caps on December 31, 2010. The DSP Program, which has a 29-month term beginning January 1, 2011 and ending May 31, 2013, complies with electric generation procurement guidelines set forth in Act 129 of 2008 (Act 129). Under the settlement, PECO will also expand its low-income assistance initiatives and offer a market rate deferral program under which certain customers can elect to phase-in, with interest, any post-electric generation rate cap increases in 2011 if they exceed 25%.

PECO’s default electric service customers have been divided into four procurement classes: a residential class, a small commercial class (for non-residential customers with peak demand up to 100 kilowatts (kW)), a medium commercial class (for non-residential customers with peak demand of greater than 100 kW up to 500 kW), and a large commercial and industrial class (for non-residential customers with peak demand in excess of 500 kW).

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)

Seventy-five percent of the residential class, 90% of the small commercial class and 85% of the medium commercial class load will be served through competitively procured contracts for load-following, fixed price full requirements default electric generation. For the remaining portion of the residential class load, PECO will competitively procure forward purchases of forward purchase energy block contracts (block contracts), which represent 20% of the load, and will balance the remaining load through sales and purchases of energy in the PJM day-ahead wholesale “spot” energy market (spot market). For the remaining portion of the small commercial and medium commercial class loads, as well as the large commercial and industrial class load, PECO will competitively procure contracts for load-following, full requirements default electric generation with the price for energy in each contract set to be the hourly price of the spot market during the term of delivery. In addition, PECO will offer large commercial and industrial customers a fixed-price optional service during the first year of PECO’s default service provider plan.

On September 21, 2009, PECO concluded the second of its competitive procurements for electric generation for default electric service customers commencing January 2011 and, on September 23, 2009, the PAPUC approved the results of the RFP process. The September 2009 procurements were for default electric service to the residential, small commercial, and medium commercial classes. As of September 30, 2009, including the previous competitive procurement completed in June 2009, PECO has entered into contracts with terms of 17 to 29 months covering 49% of planned full requirements contracts for the residential customer class, contracts with 17-month terms covering 24% of planned full requirements contracts for the small commercial customer class and contracts with 17-month terms covering 16% of planned full requirements contracts for the medium commercial customer class in accordance with the DSP program. PECO also entered into block contracts with 12-month terms for a total of 80 megawatts (MW) for service to the residential customer class in 2011 in accordance with the DSP program. PECO will conduct seven additional competitive procurements in accordance with the plan approved by the PAPUC.

Energy Efficiency and Alternative Energy Programs (Exelon and PECO).

Energy Efficiency Programs. In October 2008, Act 129 was signed into law. Pursuant to Act 129’s energy efficiency and conservation/demand (EE&C) reduction targets, PECO filed its EE&C plan with the PAPUC on July 1, 2009. The plan set forth how PECO will reduce electric consumption by at least 1% in its service territory by May 31, 2011 from expected consumption for the period June 1, 2009 through May 31, 2010, adjusted for weather conditions and extraordinary loads, and by 3% by May 31, 2013. In accordance with Act 129, by May 31, 2013, PECO also plans to reduce peak demand by a minimum of 4.5% of PECO’s annual system peak demand in the 100 hours of highest demand, measured against its peak demand during the period of June 1, 2007 through May 31, 2008. If PECO fails to achieve the required reductions in consumption within the stated deadlines, PECO will be subject to civil penalties of up to $20 million, which would not be recoverable from ratepayers. Act 129 mandates that the total cost of any EE&C plan may not exceed 2% of the electric company’s total annual revenue as of December 31, 2006. On August 7, 2009, the PAPUC voted to approve a partial settlement of PECO’s Petition for Approval of its EE&C plan providing for early implementation of PECO’s compact fluorescent light bulbs (CFL) initiative. The CFL program is one part of PECO’s four-year EE&C plan required by Act 129. On October 15, 2009, the PAPUC approved in part and denied in part PECO’s EE&C plan.

PECO is planning to spend up to approximately $650 million on its smart meter and smart grid infrastructure. On August 14, 2009, PECO filed its $550 million Smart Meter Procurement and Installation Plan

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)

with the PAPUC in accordance with the requirements of Act 129. PECO is requesting PAPUC approval to install more than 1.6 million smart meters and deploy advanced communication networks over a 15 year period. The first phase of the plan includes the procurement and deployment of automated meter infrastructure and an initial deployment of 100,000 smart meters over the next three years. PECO plans to file for PAPUC approval of an initial dynamic pricing and customer acceptance program in June 2010, and for approval of a universal meter deployment plan for its remaining customers in 2012.

On August 6, 2009, PECO filed with the DOE an application seeking $200 million in American Recovery & Reinvestment Act matching grant funds under the Smart Grid Investment Grant Program. PECO’s “Smart Future Greater Philadelphia” project will increase the number of smart meters initially installed to 600,000, accelerate universal meter deployment by five years and increase Smart Grid investments up to approximately $100 million over the next three years. No assurance can be given that PECO will receive any Federal matching funds.

Alternative Energy Portfolio Standards. In November 2004, Pennsylvania adopted the Alternative Energy Portfolio Standards Act (AEPS Act). The AEPS Act mandated that beginning in 2007, or following the end of an electric distribution company’s retail electric generation rate cap transition period, certain percentages of electric energy sold by an electric distribution company or electric generation supplier to Pennsylvania retail electric customers shall be generated from certain alternative energy resources, as measured in alternative energy credits (AECs). The requirement for electric energy that must come from Tier I alternative energy resources (including solar or wind power, low-impact hydropower, geothermal energy, biologically derived methane gas, fuel cells, biomass energy generated within Pennsylvania and coal mine methane) ranges from 1.5% to 8.0% and the requirement for Tier II alternative energy resources (including waste coal, biomass energy generated outside of Pennsylvania, demand-side management, large-scale hydropower, municipal solid waste, generation of electricity utilizing by-products of the pulping process and wood, distributed generation systems and integrated combined coal gasification technology) ranges from 4.2% to 10.0%. These Tier I and Tier II alternative energy resources include acceptable energy sources as set forth in Act 129, in addition to those outlined in the AEPS Act. The AEPS Act mandates the 8.0% requirement for Tier I resources and the 10.0% requirement for Tier II resources must be met by the year ending May 31, 2021.

The Pennsylvania Legislature is currently considering House Bill No. 80 (HB 80), which, if enacted into law, would increase the minimum required percentage of electric energy purchased and sold to retail electric customers from alternative energy resources and extend the period for such purchases and sales. HB 80 would increase the Tier 1 and solar purchase and sale requirements, limit eligible solar purchases to Pennsylvania generating sources and would incorporate advanced coal combustion with limited carbon emissions as an acceptable alternative energy resource. Generation has proposed amendments to include extended nuclear uprates as a qualifying alternative energy source.

In 2007, the PAPUC approved PECO’s plan to acquire and bank approximately 450,000 non-solar Tier I AECs (corresponding to the expected annual output of approximately 240 MWs of wind power) annually for a five-year term in order to prepare for 2011, the first year of PECO’s required compliance following the completion of its electric generation rate cap transition period. The banked AECs may be used in either of the two consecutive AEPS reporting periods after PECO’s electric generation rate cap transition period. All costs incurred in connection with AEC procurement prior to 2011 will be deferred as a regulatory asset with a return on the unamortized balance and will be recovered from customers in 2011. Those costs, and PECO’s AEPS Act

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)

compliance costs incurred thereafter, will be recovered from customers on a full and current basis through a reconcilable ratemaking mechanism as contemplated by the AEPS Act. In conformance with the plan approved in December 2007, PECO conducted two RFPs during 2008. Pursuant to the first RFP process, PECO entered into a five-year agreement in August 2008 with an accepted bidder for the purchase of 40,000 AECs annually. In April 2009, PECO entered into agreements with accepted bidders, including Generation, for the purchase of 412,000 AECs annually for five years beginning no later than December 31, 2009.

On March 3, 2009, PECO filed a petition with the PAPUC for expedited approval of its early procurement and banking of up to 8,000 solar Tier 1 AECs annually for ten years. PECO’s proposed procurement would employ the same surcharge cost-recovery mechanism that the PAPUC previously approved for non-solar Tier 1 AECs. On July 2, 2009, PECO and various interveners filed a joint petition for settlement of the case that provides for no cap on bid price, provides the PAPUC a 10 calendar day review period, permits facilities capable of generating a minimum of 300 AECs annually to bid and provides that no changes to the agreement with AEC suppliers will be accepted after PAPUC approval. On August 27, 2009, the PAPUC unanimously approved the settlement. On October 8, 2009, PECO announced its RFP to procure 8,000 solar Tier 1 AECs annually for ten years. PECO plans to enter into the fixed-price agreements by February 2010.

PJM Transmission Rate Design (Exelon, ComEd and PECO). PJM Transmission Rate Design specifies the rates for transmission service charged to customers within PJM. Currently, ComEd and PECO incur costs based on the existing rate design, which charges customers based on the cost of the existing transmission facilities within their load zone and the cost of new transmission facilities based on those who benefit. In April 2007, FERC issued an order, concluding that PJM’s current rate design for existing facilities is just and reasonable and should not be changed. That is consistent with Exelon’s position in the case. In the same order, 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 customers of the new facilities who caused the need for those facilities. In the short term, based on new transmission facilities approved by PJM, it is likely that allocating across PJM the costs of new facilities 500 kV and above will increase charges to ComEd and reduce charges to PECO, as compared to the allocation methodology in effect before the FERC order. After FERC ultimately denied all requests for rehearing on all issues, several parties filed petitions in the U.S. Court of Appeals for the Seventh Circuit for review of the decision. On August 6, 2009, the court issued its decision affirming FERC’s order with regard to the costs of existing facilities but reversing and remanding to FERC for further consideration its decision with regard to the costs of new facilities 500 kV and above. On September 21, 2009, two parties filed a petition for rehearing by the full court concerning the court’s decision to remand to FERC the part of the decision regarding the allocation of the costs of new facilities 500 KV and above. Parties may file a petition for appeal to the U.S. Supreme Court after the rehearing request is resolved. 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. PECO also has the right to file with the PAPUC for a change in retail rates to reflect changes in its wholesale transmission costs. PECO cannot predict the long-term impact of any rate design changes due to the uncertainty as to whether new facilities will be built and how the costs of new facilities less than 500 kV will be allocated; however, the impact may be material to its results of operations, cash flows, or financial position.

PJM-MISO Regional Rate Design (Exelon, ComEd and PECO). The current PJM-MISO Regional Rate Design is used to specify the pricing of transmission service between PJM and Midwest Independent

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)

Transmission System Operator, Inc. (MISO) and impacts ComEd and PECO due to purchases by suppliers from MISO. In August 2007, ComEd and PECO and several other transmission owners in PJM and MISO, as directed by a FERC order, filed with FERC to continue the existing transmission rate design between PJM and MISO. Additional transmission owners and certain other entities filed protests urging FERC to reject the filing. In September 2007, a complaint was filed 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. In December 2008, FERC denied a request for rehearing of these orders and an appeal has been filed in the United States Court of Appeals. ComEd and PECO cannot predict the outcome of this litigation.

Authorized Return on Rate Base (Exelon, ComEd and PECO). In the September 2008 order in the 2007 Rate Case, the ICC authorized a return on ComEd’s distribution rate base using a weighted average debt and equity return of 8.36%. As part of the FERC-approved settlement of ComEd’s 2007 transmission rate case, ComEd’s formula transmission rate currently provides for a weighted average debt and equity return on transmission rate base of 9.43%, which is exclusive of the incentive ROE on ComEd’s largest transmission project. 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.

PECO’s transition period includes caps on electric generation rates that will expire on December 31, 2010 pursuant to the Pennsylvania Electric Generation Customer Choice and Competition Act (Competition Act). The distribution and transmission components of PECO’s rates continue to be regulated. PECO’s most recently approved weighted average debt and equity return on electric rate base was 11.23% (approved in 1990). PECO’s gas rates are not subject to caps. As part of the gas distribution rate case filed in March 2008, PECO requested that the PAPUC authorize it to establish base rates for natural gas distribution service using a weighted average debt and equity return on gas rate base of 8.90%. The joint settlement petition in that matter, approved in October 2008 by the PAPUC, did not specify the rate of return upon which the settlement rates are based, but rather provided for an increase in annual revenue. Prior to the 2008 gas distribution rate case, the most recently approved weighted average debt and equity return on gas rate base was 11.45% (approved in 1988).

Market-Based Rates (Exelon, Generation, ComEd and PECO). Generation, ComEd and PECO are public utilities for purposes of the Federal Power Act and are required to obtain FERC’s acceptance of rate schedules for wholesale electricity sales. Currently, Generation, ComEd and PECO have authority to execute wholesale electricity sales 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, ComEd or PECO 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.

In June 2007, FERC issued a Final Rule on Market-Based Rates for Wholesale Sales of Electric Energy, Capacity and Ancillary Services by Public Utilities (Order No. 697), which updated and modified the tests that FERC had implemented in 2004. That order was clarified in December 2007. Subsequently, Order No. 697 was largely affirmed and further clarified in Order No. 697-A, Order No. 697-B, and Order No. 697-C. The Registrants do not expect that the Final Rule will have a material effect on their results of operations in the short-term. The longer-term impact will depend on the future application by FERC of Order Nos. 697 and future actions involving market-based rates.

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)

In January 2008, Generation, ComEd and PECO filed an analysis for generation in the Northeast region covering generation in PJM and ISO-New England using FERC’s updated screening tests, as required by the Final Rule. The filing demonstrated that under those tests, Generation, ComEd, and PECO should be permitted to continue to sell at market-based rates. In August 2008, Generation, ComEd and PECO made an updated filing based on the additional information requested by FERC and following FERC’s guidance in its July 2008 order.

In March 2008, the ICC intervened in the proceeding and in September 2008 filed a protest. In its protest, the ICC did not object to Exelon’s request for continued authority to make market-based sales. Instead, the ICC repeated its contentions in an earlier docket in which ComEd had asked FERC to affirm that the procurement for its customers for the period June 1, 2008 through May 31, 2009 satisfied FERC standards, the ICC contended that existing waivers of FERC’s affiliate transaction rules should no longer apply between ComEd and its affiliates, including Generation, because ComEd has captive retail customers. In its response, Exelon reminded FERC that the ICC’s contention was the same as in the earlier ComEd procurement proceeding in which FERC had rejected the ICC’s position. Exelon also noted that the facts on which FERC based its previous finding have not changed.

In December 2008, Generation filed an analysis for generation in the Southeast region covering generation in the Southern Company and Entergy areas using FERC’s updated screening tests, as required by the Final Rule. In June 2009, Generation filed an analysis for generation in the Central region covering generation in the MISO market using FERC’s updated screening tests, also as required by the Final Rule. These analyses demonstrated that Exelon does not have market power in those areas and, therefore, is entitled to continue to sell at market-based rates in them. FERC accepted the December 2008 filing on September 2, 2009.

On January 15, 2009, FERC accepted Exelon’s analysis and filing, affirming Exelon’s affiliates’ continued right to make sales at market-based rates. FERC also rejected an ICC request for rehearing in the earlier ComEd procurement docket, in which the ICC had also asked FERC to reconsider its determination in that proceeding that the existing waiver of the affiliate restrictions should not be revoked.

Reliability Pricing Model (RPM) (Exelon and Generation). On August 31, 2005, PJM submitted a proposal to FERC for a new capacity payment construct to replace PJM’s then-existing capacity obligation rules. The proposal provided for a forward capacity procurement auction to establish capacity and payment obligations using a demand curve and locational deliverability zones for capacity. The FERC affirmed PJM’s proposal for forward commitments and other matters but encouraged PJM and the parties to that FERC proceeding to resolve other RPM issues by settlement. A settlement was reached on September 29, 2006 and was approved by FERC on December 22, 2006. The settlement provided for an auction 36 months in advance of each delivery year beginning with the delivery year ending May 31, 2012 and an expedited phase-in process for four transitional auctions covering delivery years ending on May 31 in 2008 through 2011. All but one appeal of FERC’s order approving RPM were withdrawn on February 27, 2009 and the remaining appeal was denied by the U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit) on March 17, 2009.

PJM’s four transitional RPM auctions took place in April 2007, July 2007, October 2007 and January 2008 and established prices for the period from June 1, 2007 through May 31, 2011. Subsequent auctions will take place 36 months ahead of the scheduled delivery year. The auction for the delivery year ending May 31, 2012 and May 31, 2013 occurred in May 2008 and May 2009, respectively. Thus far, the RPM capacity auctions have secured capacity for the PJM market through 2013. While auction results produced varying prices, as anticipated,

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)

the RPM has been beneficial for owners of generation facilities, particularly for such facilities located in constrained zones, as compared to the prior capacity-payment construct.

On May 30, 2008, a group of PJM load-serving entities, state commissions, consumer advocates, and trade associations (referred to collectively as the RPM Buyers) filed a complaint at FERC against PJM alleging that three of the four transitional RPM auctions yielded prices that are unjust and unreasonable under the Federal Power Act. Most of the parties comprising the RPM Buyers group were parties to the settlement approved by FERC that established RPM. In the complaint, the RPM Buyers requested that the total projected payments to RPM sellers for the three auctions at issue be materially reduced. On September 19, 2008, FERC dismissed the complaint finding that no party violated PJM’s tariff and the prices determined during the initial auctions implementing the RPM were in accord with the tariff provisions governing the auctions. On June 18, 2009, FERC denied the RPM Buyers’ request for rehearing of FERC’s September 19, 2008 order. On August 14, 2009, RPM Buyers filed a petition with the U.S. Court of Appeals for the Fourth Circuit (4^th Circuit) for review of the FERC’s September 19, 2008 order, rejecting their complaint that RPM resulted in unjust and unreasonable capacity prices. On September 17, 2009, PJM filed a motion to transfer the case to the D.C. Circuit on the grounds that the 4 ^th Circuit was an improper venue, which is currently pending. While the 4^th Circuit might be a slightly more favorable forum for petitioners, whether the case is heard in the 4^th Circuit or D.C. Circuit, Generation believes FERC is more likely to prevail. If the 4^th Circuit or D.C. Circuit were to reverse FERC’s decision, FERC would be required to conduct additional proceedings regarding the substantive allegations in the complaint. Exelon and Generation believe that it is remote that the ultimate outcome of this matter will have a material adverse impact on their respective results of operations, cash flows or financial position.

In a companion order also issued on September 19, 2008, FERC directed PJM and its stakeholders to evaluate whether prospective changes should be made to RPM and if a consensus is reached, file such a consensus with FERC in time to be in effect for the May 2009 RPM Auction. PJM filed a report with FERC on December 12, 2008 summarizing the discussions and explaining that a consensus was not reached. PJM also filed its own proposal with FERC on December 12, 2008. On March 26, 2009, FERC issued an order accepting in part and rejecting in part PJM’s December 12 filing, as amended by an Offer of Settlement filed by PJM and some members of PJM in response to the December 12 filing. A number of parties filed for rehearing and/or clarification of the March 26, 2009 Order. Any order may then be subject to review in the United States Court of Appeals.

License Renewals (Exelon and Generation). In July 2005, Generation applied for license renewal for Oyster Creek on a timeline consistent and integrated with the other planned license renewal filings for the Generation nuclear fleet. The application was challenged by various citizen groups and the New Jersey Department of Environmental Protection (NJDEP), including filings made with the Nuclear Regulatory Commission’s (NRC) Atomic Safety Licensing Board, the NRC Commissioners, and the U.S. Court of Appeals for the Third Circuit. These filings and appeals were rejected or denied, and the time for filing such appeals has passed. On April 8, 2009, the NRC issued the renewed operating license for Oyster Creek that expires in April 2029. On May 29, 2009, a coalition of six community groups filed a Petition for Review of the NRC’s renewal of Oyster Creek’s operating license in the Third Circuit Court of Appeals. If the appeal is successful, it is unlikely that it would result in a revocation of the renewed license; however, it could cause the NRC to impose additional conditions over the course of the period of extended operation.

On January 8, 2008, AmerGen submitted an application to the NRC to extend the operating license of TMI Unit 1 for an additional 20 years. On October 22, 2009, the NRC issued the renewed operating license for TMI Unit 1 that expires in April 2034.

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)

On August 18, 2009, PSEG submitted an application to the NRC to extend the operating license of Salem Units 1 and 2 by 20 years. Exelon is part owner of the Salem Units. The NRC is expected to spend a total of 22 to 30 months to review the application before making a decision. The current operating licenses expire in 2016 and 2020.

4. Property Plant and Equipment (Exelon and Generation)

Long-Lived Asset Impairments (Exelon and Generation)

Generation evaluated its Texas plants, comprised of the Handley, Mountain Creek and LaPorte generating stations, for potential impairment as of December 31, 2008, and concluded that there was no impairment, as the plants’ estimated undiscounted future cash flows exceeded the carrying values of the plants. Due to the continued decline in forward energy prices in the first quarter of 2009, Generation again evaluated its Texas plants for recoverability as of March 31, 2009.

As the estimated undiscounted future cash flows and fair value of the Handley and Mountain Creek stations were less than the stations’ carrying values, the stations were determined to be impaired at March 31, 2009. LaPorte station was determined not to be impaired. Accordingly, the Handley and Mountain Creek stations were written down to fair value, and an impairment charge of $223 million was recorded in operating and maintenance expense in Exelon’s and Generation’s Consolidated Statements of Operations in the first quarter of 2009. The fair value of the stations was determined using the income (discounted cash flow), market (available comparables) and cost (replacement cost) valuation approaches in determining fair value.

During the second and third quarter of 2009, Generation assessed whether there had been any triggering events requiring an impairment assessment for any of its generating stations. Based on this analysis, it was determined that Generation did not have any triggering events requiring impairment assessments for any of its generating stations during the three months ended June 30, 2009 and September 30, 2009.

See Note 6 — Fair Value of Assets and Liabilities for additional disclosures.

5. Intangible Assets (Exelon, Generation, ComEd and PECO)

Goodwill (Exelon and ComEd). As of September 30, 2009 and December 31, 2008, Exelon and ComEd had goodwill of approximately $2.6 billion. 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 or significant change in business conditions. Exelon and ComEd perform their annual goodwill impairment assessment in the fourth quarter of each year.

Because of the continued uncertainty in the financial markets and overall economic conditions, during the first, second, and third quarters of 2009, ComEd reviewed the significant assumptions included in its goodwill impairment analysis to determine if it was more likely than not that ComEd’s fair value was less than its carrying value. The analyses focused on management’s current expectations of future cash flows, as well as current

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EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES

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COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

market conditions that impact various economic indicators that are utilized in assessing ComEd’s fair value. Based on these analyses, it was determined that ComEd did not have any triggering events requiring ComEd to perform a goodwill assessment during the nine months ended September 30, 2009.

City of Chicago Settlements (Exelon and ComEd). Exelon’s and ComEd’s other intangible assets, included in deferred debits and other assets on the Consolidated Balance Sheets include the following previous payments associated with the City of Chicago settlements as of September 30, 2009 and December 31, 2008:


	Gross		Accumulated Amortization			Net		Estimated amortization expense
September 30, 2009	Gross		Accumulated Amortization			Net		Remainder of 2009		2010		2011		2012		2013
Chicago settlement – 1999 agreement(a)	$	100	$	(60	)	$	40	$	1	$	3	$	3	$	3	$	3
Chicago settlement – 2003 agreement(b)		62		(24	)		38		1		4		4		4		4

Total intangible assets	$	162	$	(84	)	$	78	$	2	$	7	$	7	$	7	$	7


December 31, 2008	Gross		Accumulated Amortization			Net		Estimated amortization expense
December 31, 2008	Gross		Accumulated Amortization			Net		2009		2010		2011		2012		2013
Chicago settlement – 1999 agreement(a)	$	100	$	(58	)	$	42	$	3	$	3	$	3	$	3	$	3
Chicago settlement – 2003 agreement(b)		62		(21	)		41		4		4		4		4		4

Total intangible assets	$	162	$	(79	)	$	83	$	7	$	7	$	7	$	7	$	7

(a)

In March 1999, ComEd entered into a settlement agreement with the City of Chicago associated with ComEd’s franchise agreement. Under the terms of the settlement, ComEd agreed to make payments of $25 million to the City of Chicago 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, which ends in 2020.

(b)

In February 2003, ComEd entered into separate agreements with the City of Chicago and with Midwest Generation, LLC (Midwest Generation). Under the terms of the settlement agreement with the City of Chicago, ComEd agreed to pay the City of Chicago a total of $60 million over a ten-year period, beginning in 2003. The intangible asset recognized as a result of the settlement agreement is being amortized ratably over the remaining term of the City of Chicago franchise agreement, which ends in 2020.

Pursuant to the agreement discussed above, ComEd received payments of $32 million from Midwest Generation to relieve Midwest Generation’s obligation under its 1999 fossil sale agreement with ComEd to build the generation facility in the City of Chicago. 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.

Exelon’s and ComEd’s amortization expense related to intangible assets was $2 million for the three months ended September 30, 2009 and 2008 and $5 million for the nine months ended September 30, 2009 and 2008.

RECs and AECs (Exelon, Generation and PECO). Exelon’s, Generation’s, and PECO’s other intangible assets, included in other deferred debits and other assets on the Consolidated Balance Sheets, include RECs (Exelon and Generation) and AECs (PECO). As of September 30, 2009, PECO had AECs of $12 million. PECO did not have any AECs as of December 31, 2008. As of September 30, 2009 and December 31, 2008, the balances of RECs for Generation were $3 million and $2 million respectively. See Note 3 — Regulatory Issues for additional information on RECs and AECs.

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)

6. Fair Value of Financial Assets and Liabilities (Exelon, Generation, ComEd and PECO)

Fair Value of Financial Liabilities Recorded at the Carrying Amount

Exelon

The carrying amounts and fair values of Exelon’s long-term debt and spent nuclear fuel obligation as of September 30, 2009 and December 31, 2008 were as follows:


	September 30, 2009				December 31, 2008
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Long-term debt (including amounts due within one year)	$	11,894	$	12,562	$	11,426	$	10,803
Long-term debt to PETT (including amounts due within one year)		591		617		1,124		1,193
Long-term debt to other financing trusts		390		318		390		200
Spent nuclear fuel obligation		1,017		835		1,015		544
Preferred securities of subsidiary		87		64		87		63

Generation

The carrying amounts and fair values of Generation’s long-term debt and spent nuclear fuel obligation as of September 30, 2009 and December, 31, 2008 were as follows:


	September 30, 2009				December 31, 2008
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Long-term debt (including amounts due within one year)	$	3,139	$	3,294	$	2,514	$	2,402
Spent nuclear fuel obligation		1,017		835		1,015		544

ComEd

The carrying amounts and fair values of ComEd’s long-term debt as of September 30, 2009 and December 31, 2008 were as follows:


	September 30, 2009				December 31, 2008
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Long-term debt (including amounts due within one year)	$	4,710	$	5,102	$	4,726	$	4,510
Long-term debt to financing trust		206		163		206		100

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)

PECO

The carrying amounts and fair values of PECO’s long-term debt and preferred securities as of September 30, 2009 and December 31, 2008 were as follows:


	September 30, 2009				December 31, 2008
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Long-term debt (including amounts due within one year)	$	2,221	$	2,348	$	1,971	$	1,954
Long-term debt to PETT (including amounts due within one year)		591		617		1,124		1,193
Long-term debt to other financing trusts		184		155		184		100
Preferred securities		87		64		87		63

Recurring Fair Value Measurements

To increase consistency and comparability in fair value measurements, the FASB established 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 assets or liabilities that the Registrants have the ability to access as of the reporting date. Financial assets and liabilities utilizing Level 1 inputs include active exchange-traded equity securities, exchange-based derivatives, mutual funds and money market funds.

•

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-exchange-based derivatives, commingled investment funds with observable market data 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 with unobservable market data and subject to purchase and sale restrictions.

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)

Exelon

The following table presents assets and liabilities measured and recorded at fair value on Exelon’s Consolidated Balance Sheets on a recurring basis and their level within the fair value hierarchy as of September 30, 2009 and December 31, 2008:


As of September 30, 2009 (In millions)	Level 1			Level 2			Level 3			Total
Assets
Cash equivalents	$	2,307		$	—		$	—		$	2,307	(a)
Nuclear decommissioning trust fund investments
Cash equivalents		3			—			—			3
Equity securities		1,444			—			—			1,444	(b)
Commingled funds		—			113			1,951			2,064	(c)
Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies		410			130			—			540
Debt securities issued by states of the United States and political subdivisions of the states		—			475			—			475
Corporate debt securities		—			699			—			699
Federal agency mortgage-backed securities		—			888			—			888
Commercial mortgage-back securities (non-agency)		—			100			—			100
Residential mortgage-backed securities (non-agency)		—			9			—			9
Other debt obligations		—			80			—			80

Nuclear decommissioning trust fund investments subtotal		1,857			2,494			1,951			6,302	(d)

Rabbi trust investments
Cash equivalents		3			—			—			3
Mutual funds		47			—			—			47	(e)(f)

Rabbi trust investments subtotal		50			—			—			50	(f)

Mark-to-market derivative net assets		(5	)		714			(38	)		671	(g)(h)

Total assets		4,209			3,208			1,913			9,330

Liabilities
Deferred compensation		—			(80	)		—			(80	)
Servicing liability		—			—			(2	)		(2	)

Total liabilities		—			(80	)		(2	)		(82	)

Total net assets	$	4,209		$	3,128		$	1,911		$	9,248

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)


As of December 31, 2008 (In millions)	Level 1		Level 2			Level 3			Total
Assets
Cash equivalents	$	1,228	$	—		$	—		$	1,228	(a)
Nuclear decommissioning trust fund investments
Cash equivalents		13		—			—			13
Equity securities		903		—			—			903	(b)
Commingled funds		—		94			1,220			1,314	(c)
Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies		419		91			—			510
Debt securities issued by states of the United States and political subdivisions of the states		—		414			—			414
Corporate debt securities		—		764			—			764
Federal agency mortgage-backed securities		6		1,495			—			1,501
Commercial mortgage-back securities (non-agency)		—		111			—			111
Other debt obligations		—		107			—			107

Nuclear decommissioning trust fund investments subtotal		1,341		3,076			1,220			5,637	(d)

Rabbi trust investments
Cash equivalents		2		—			—			2
Mutual funds		43		—			—			43	(f)

Rabbi trust investments subtotal		45		—			—			45	(f)

Mark-to-market derivative net assets		12		561			106			679	(g)(h)

Total assets		2,626		3,637			1,326			7,589

Liabilities
Deferred compensation		—		(85	)		—			(85	)
Servicing liability		—		—			(2	)		(2	)

Total liabilities		—		(85	)		(2	)		(87	)

Total net assets	$	2,626	$	3,552		$	1,324		$	7,502

(a)	Excludes certain cash equivalents considered to be held-to-maturity and not reported at fair value.

(b)	Generation’s nuclear decommissioning trust funds hold equity portfolios whose performance is benchmarked against the Standard and Poor’s (S&P) 500 Index, Russell 3000 Index or Morgan Stanley Capital International Europe, Australasia and Far East (EAFE) Index.

(c)

Generation’s nuclear decommissioning trust funds own commingled funds that invest in both equity and fixed income securities. The commingled funds that invest in equity securities seek to track the performance of the S&P 500 Index, Morgan Stanley Capital International EAFE Index and Russell 3000 Index. The commingled funds that hold fixed income securities invest primarily in a diversified portfolio of high grade money market instruments and other short-term fixed income securities.

(d)	Excludes net assets of $200 million and net liabilities of $137 million consisting of payables related to pending securities purchases net of cash, interest receivables and receivables related to pending securities sales at September 30, 2009 and December 31, 2008, respectively.

(e)	The mutual funds held by the Rabbi trusts invest in large cap equity securities and municipal debt securities. During the second quarter of 2009, Exelon and ComEd recorded an other-than-temporary impairment of $7 million (pre-tax) related to Rabbi trust investments in other income and deductions.

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)

(f)	Excludes $23 million and $19 million of the cash surrender value of life insurance investments at September 30, 2009 and December 31, 2008, respectively.

(g)

Includes both current and noncurrent mark-to-market derivative assets and interest rate swaps, and is net of current and noncurrent mark-to-market derivative liabilities. In addition, the Level 3 balance does not include current and noncurrent assets for Generation and current and noncurrent liabilities for ComEd of $305 million and $779 million at September 30, 2009 and $111 million and $345 million at December 31, 2008, respectively, related to the fair value of Generation’s financial swap contract with ComEd, and a noncurrent asset of $1 million at September 30, 2009 related to the fair value of Generation’s block contracts with PECO, which eliminate upon consolidation in Exelon’s Consolidated Financial Statements.

(h)

Includes collateral postings received from and paid to counterparties. Collateral received from counterparties, net of collateral paid to counterparties, totaled $4 million, $1,130 million and $3 million that are netted against Level 1, Level 2 and Level 3 mark-to-market derivative net assets, respectively, as of September 30, 2009. Collateral received from counterparties, net of collateral paid to counterparties, totaled $11 million, $741 million and $1 million that are netted against Level 1, Level 2 and Level 3 mark-to-market derivative net assets, respectively, as of December 31, 2008.

The following table presents the fair value reconciliation of Level 3 assets and liabilities measured at fair value on a recurring basis during the three and nine months ended September 30, 2009 and 2008:


Three Months Ended September 30, 2009 (In millions)	Nuclear Decommissioning Trust Fund Investments		Mark-to-Market Derivatives			Servicing Liability			Total
Balance as of June 30, 2009	$	1,679	$	12		$	(2	)	$	1,689
Total realized / unrealized gains (losses)
Included in income		78		(31	)(a)(c)		—			47
Included in other comprehensive income		—		(4	)(b)		—			(4	)
Included in regulatory assets (liabilities)		191		(1	)		—			190
Purchases, sales and issuances, net		3		—			—			3
Transfers into or (out of) Level 3		—		(14	)		—			(14	)

Balance as of September 30, 2009	$	1,951	$	(38	)	$	(2	)	$	1,911