ML031760532

Annual Financial Statements

ML031760532
Person / Time
Site:	Oyster Creek, Clinton, Crane
Issue date:	06/18/2003
From:	Gallagher M AmerGen Energy Co
To:	Document Control Desk, Office of Nuclear Reactor Regulation
References
2130-03-20183, 5928-03-20135
Download: ML031760532 (23)

Text

AmerGen SM AmerGen Energy Company, LLC www.exeloncorp.com An Exelon/British Energy Company 200 Exelon Way Suite 345 Kennett Square, PA 19348 10 CFR 50.71(b)

June 18, 2003 5928-03-20135 2130-03-20183 U.S. Nuclear Regulatory Commission Attn: Document Control Desk' Washington, DC 20555-0001

SUBJECT:

THREE MILE ISLAND (TMI), UNIT 1 OPERATING LICENSE NO. DPR-50 DOCKET NO. 50-289 CLINTON POWER STATION (CPS)

OPERATING LICENSE NO. NPF-62 DOCKET NO. 50-461 OYSTER CREEK GENERATING STATION (Oyster Creek)

OPERATING LICENSE NO. DPR-16 DOCKET NO. 50-219 AMERGEN ENERGY COMPANY, LLC (AmerGen)

Annual Financial Statements Attached is the 2002 Annual Financial Report for AmerGen Energy Company, LLC, operator of Three Mile Island, Unit I (TMI Unit 1), Clinton Power Station (CPS), and Oyster Creek Generating Station (Oyster Creek). This Annual Report contains the annual financial statements for 2002. This information is being submitted in accordance with the requirements of 10 CFR 50.71(b) and 10 CFR 50.4.

If you have any questions or require additional information, please do not hesitate to contact us.

Very truly yours, Michael P. Gallagher Director - Licensing & Regulatory Affairs AmerGen Energy Company, LLC

Enclosure:

AmerGen Energy Company, LLC Financial Statements - December 31, 2002 - 2001

2002 Annual Financial Statements June 18, 2003 Page 2 cc:

H. J. Miller, USNRC, Regional Administrator, Region I J. E. Dyer, USNRC, Regional Administrator, Region III C. W. Smith, USNRC, Acting Senior Resident Inspector, TMI-1 S. Dennis, USNRC, Senior Resident Inspector, OCGS B. C. Dickson, USNRC, Senior Resident Inspector, CPS P. S. Tam, USNRC Senior Project Manager, OCGS D. V. Pickett, USNRC Senior Project Manager, CPS T. G. Colbum, USNRC Senior Project Manager, TMI-1 S. J. Collins, Office of Nuclear Reactor Regulation, USNRC, CPS File No. 99012 (TMI-1)

File No. 99012 (OCGS) wl Enclosure w/o Enclosure a

AmerGen Energy Company LLC Financial Statements for the Years Ended December 31, 2002 and 2001

AmerGen Energy Company, LLC 300 Exelon Way Kennett Square, Pennsylvania 19348 Management Committee (as of December 31, 2002)

John L. Skolds, Chairman William H. Bohlke Norman Callaghan Duncan Hawthorne Oliver D. Kingsley, Jr.

Michael Kirwan Charles P. Lewis Charles G. Pardee Officers (as of December 31, 2002)

CEO and Chief Nuclear Officer.....................

John L. Skolds President.....................

Duncan Hawthorne Senior Vice President.....................

William H. Bohlke Senior Vice President.....................

Christopher M. Crane Senior Vice President.....................

Charles G. Pardee Vice President.....................

Jeffrey A. Benjamin Vice President.....................

Norman Callaghan Vice President.....................

Ernest J. Harkness Vice President.....................

Charles P. Lewis Vice President.....................

J. Donald Myhan Vice President.....................

Michael Pacilio Vice President.....................

George Vanderheyden Vice President and Controller.....................

Thomas H. Weir Vice President.....................

Bruce C. Williams Vice President.....................

David B. Wozniak Treasurer.....................

J. Barry Mitchell Assistant Treasurer.....................

George R. Shicora Assistant Treasurer.....................

Charles S. Walls Secretary.....................

Edward J. Cullen, Jr.

Assistant Secretary.....................

Todd D. Cutler

AmerGen Energy Company, LLC Table of Contents December 31, 2002 and 2001 Page(s)

Report of Independent Accountants I

Financial Statements Statements of Position as of December 31, 2002 and 2001 2

Statements of Operations and Changes in Members' Equity for the Years Ended December 31, 2002 and 2001 3

Statements of Cash Flows for the Years Ended December 31, 2002 and 2001 4

Notes to Financial Statements 5 - 17

pRICEWATEOUS(JPERS X

PricewaterhouseCoopers LLP Two Commerce Square, Suite 1700 2001 Market Street Philadelphia PA 19103-7042 Telephone (267) 330 3000 Facsimile (267) 330 3300 Report of Independent Accountants To the Members of AmerGen Energy Company, LLC In our opinion, the accompanying statements of position and the related statements of operations and changes in members' equity and of cash flows present fairly, in all material respects, the financial position of AmerGen Energy Company, LLC (the "Company") at December 31, 2002 and 2001, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.

As discussed in Note I to the financial statements, the Company adopted the provisions of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, effective January 1, 2002.

March427,92003 March 27, 2003

AmerGen Energy Company, LLC Statements of Position As of December 31, 2002 and 2001 (Dollars in thousands)

Assets Current Assets Cash and cash equivalents Accounts receivable Notes receivable, net Materials and supplies Prepaid expenses and other Total current assets Fixed Assets Property, plant and equipment, net of accumulated depreciation of

$26,930 and $9,522 in 2002 and 2001, respectively Construction work in progress Nuclear fuel, net of accumulated amortization Total fixed assets Other Long Tenn Assets Decommissioning funds Notes receivable, net Goodwill, net Total other long term assets Total assets 2002 14,313 29,446 4,421 30,359 7,261 85,800 2001 26,746 44,963 4,163 22,505 7,028 105,405 270,761 27,720 155,599 454,080 1,001,889 4,696 34,439 1,041,024 1,580,904 163,304 81,776 124,970 370,050 990,216 9,117 34,439 1,033,772 1,509,227 Liabilities and Members' Equity Current Liabilities Book overdraft Accounts payable Current portion of long-term notes Due to affiliates, net Notes payable - affiliate Accrued severance costs Total current liabilities Non-Current Liabilities Decommissioning obligations Excess of acquired net assets over cost, net Long-term notes, net of current portion Pension obligations Other post-retirement benefit obligations Other Total non-current liabilities Total liabilities Members' Equity Member's capital - Exelon Generation Member's capital - British Energy Accumulated other comprehensive income Members' equity Total members' equity Total liabilities and members' equity 1,780 82,105 25,505 3,946 35,000 1,899 150,235 962,496 60,020 12,197 70,210 7,439 1,112,362 1,262,597 40,110 40,110 (77,483) 315,570 318,307 1,580,904 S

116,088 25,505 43,021 184,614 920,887 43,398 78,274 22,130 61,300 194 1,126,183 1,310,797 40,110 40,110 (36,330) 154,540 198,430 1,509,227 The accompanying notes are an integral part of these financial statements.

2

AmerGen Energy Company, LLC Statements of Operations and Changes in Members' Equity For the Years Ended December 31, 2002 and 2001 (Dollars in thousands)

Operating revenue Operating expense Fuel Operating and maintenance Depreciation and amortization Other taxes Total operating expense 644,043 64,694 411,653 17,439 26,484 520,270 Operating income 123,773 Interest expense Investment income on decommissioning trust funds Other income, net (48,682) 35,682 6,859 117,632 Income before change in accounting principle Cumulative effect of change in accounting principle Net income 43,398 161,030 Members' equity (deficit), beginning of year Members' equity, end of year 154,540 315,570 The accompanying notes are an integral part of these financial statements.

3 2002 2001

$601,969 47,770 401,794 5,603 25,064 480,231 121,738 (42,237) 68,547 8,239 156,287 156,287 (1,747)

$154,540

AmerGen Energy Company, LLC Statements of Cash Flows For the Years Ended December 31, 2002 and 2001 (Dollars in thousands) 2002 Cash flows from operating activities:

Net income Adjustments to reconcile net income to net cash provided by operating activities:

Amortization of nuclear fuel Decommissioning expense Pension expense greater (less) than funding Net realized gains on decommissioning trust funds Postretirement benefits expense Amortization of goodwill Cumulative effect of change in accounting principle Amortization of discount/premium Depreciation expense Other Changes in working capital:

Accounts receivable Materials and supplies Other current assets Accounts payable Accrued severance costs Due to affiliates, net Net cash provided by operating activities Cash flows from investing activities:

Preacquisition taxes on decommissioning trust funds Investment in property, plant and equipment Investment in nuclear fuel Payment received on note receivable Proceeds from decommissioning trust fund Investment in decommissioning trust fund 2001 161,030

$156,287 45,666 30,176 41,609 35,421 (9,933) 130 (9,444)

(48,572; 8,910 6,780 (2,641)

(43,398) 6,428 6,817 17,420 8,230 783 215 15,517 40,027 (7,854)

(8,700; (233) 3,428 (33,982)

(6,158) 1,899 (39,075) 27,036 155,343 248,476 (70,821)

(76,294) 4,986 555,307 (592,229)

(179,051)

Net cash used in investing activities Cash flows from financing activities Book overdraft Issuance of debt Repayments on fnancing agreements 1,780 35,000 (25,505) 11,275 (12,433)

Net cash provided by (used in) financing activities Net (decrease) increase in cash Cash and cash equivalents at beginning of year 26,746 Cash and cash equivalents at end of year 14,313 The accompanying notes are an integral part of these financial statements.

(22,639)

(126,418)

(59,644) 4,986 386,979 (394,149)

(210,885)

(25,505)

(25,505) 12,086 14,660

$ 26,746 4

I I

AmerGen Energy Company, LLC Notes to Financial Statements December 31, 2002 and 2001 (Dollars in thousands)

1. Significant Accounting Policies Description of Business PECO Energy Company, Inc. (PECO), a wholly owned subsidiary of Exelon Corporation and British Energy, Inc. (BE), a wholly-owned subsidiary of British Energy, PLC, formed AmerGen Energy Company, LLC (AmerGen or the Company) to pursue opportunities to acquire and operate nuclear power generating stations in the United States. In January 2001, PECO assigned its interest in AmerGen to an affiliate, Exelon Generation, LLC (Generation). At December 31, 2002, Generation and BE each own 50% of AmerGen. AmerGen currently owns and operates the Clinton Nuclear Power Station (CNPS) in Clinton, Illinois, Three Mile Island Unit No. 1 (Tvl) located in Middletown, Pennsylvania and the Oyster Creek Nuclear Generating Station (OC) located in Forked River, New Jersey.

Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Revenues Electricity generated by the Company is sold at wholesale under Purchase Power Agreements (PPAs).

Wholesale electric revenues are recorded as the energy is delivered to customers. At the end of each month, AmerGen accrues an estimate for unbilled energy provided to its customers.

Nuclear Fuel The cost of nuclear fuel is capitalized and charged to fuel expense on the units of production method.

Estimated costs of nuclear fuel disposal are charged to fuel expense as the fuel is consumed.

Depreciation and Amortization Depreciation is provided over the estimated service lives of the property, plant and equipment on a straight-line basis. Nuclear power stations operate under a license granted by the Nuclear Regulatory Commission (NRC) for a fixed period of time. Plant service lives may be limited by the expiration of the license. Annual depreciation provisions for financial reporting purposes for each asset category are presented in the table below:

Asset Category CNPS TMI OC Generation and common plant 26 years 13 years 9 years Other property and equipment 10 years 10 years 9 years 5

AmerGen Energy Company, LLC Notes to Financial Statements December 31, 2002 and 2001 (Dollars in thousands)

Income Taxes A provision for income taxes is not included in the accompanying financial statements as AmerGen is treated as a partnership for federal and state income tax purposes. Earnings or losses of AmerGen are allocated to the equity members for inclusion in each of the members' separate tax returns.

Taxes based on the taxable income of the qualified decommissioning trusts are included in investment income in the statement of operations. Such taxes are determined at a 20% federal rate. Taxable income includes interest, dividends and capital gains. Deferred taxes based on the unrealized gains and losses of the qualified and non-qualified decommissioning trusts are included in AmerGen's accumulated other comprehensive income.

In 2001, AmerGen was able to determine the amounts of income tax liabilities related to the qualified decommissioning trusts at the dates such trusts were acquired by AmerGen. Such income taxes totaled approximately $23 million and were recorded as increases to goodwill of the respective nuclear power stations. Due to dispositions of securities in the decommissioning funds, these taxes were paid in 2001. Income taxes of $5.5 million and $8.8 million related to the qualified decommissioning trusts are included in investment income in 2002 and 2001, respectively.

Property, Plant and Equipment Property, plant and equipment is recorded at cost. The cost of maintenance, repairs and minor replacements of property are charged to maintenance expense as incurred. AmerGen evaluates the carrying value of property, plant and equipment and other long-term assets based upon current and anticipated undiscounted cash flows, and would recognize an impairment when it is probable that such estimated cash flows will be less than the carrying value of the asset. Measurement of the amount of impairment, if any, is based upon the difference between the carrying value and the fair market value. The cost and accumulated depreciation of property, plant and equipment retired or otherwise disposed of are removed from the related accounts and included in the determination of the gain or loss on disposition.

The following is a summary of property, plant and equipment by classification as of December 31, 2002:

Asset Class Clinton OYC TMI Common Total Plant& generation

$153,238

$19,336

$73,289

$5,670

$251,533 Computer equipment 16,125 9,698 9,562 35,385 Fumiture & fixtures 3,190 1,687 1,331 6,208 Other 3,042 1,125 398 4,565 Total Less accumulated depreciation Property, plant and equipment, net 175,595 31,846 84,580 5,670 297,691 6,604 5,320 9,519 5,487 26,930

$168,991

$26,526

$75,061

$183

$270,761 6

AmerGen Energy Company, LLC Notes to Financial Statements December 31, 2002 and 2001 (Dollars in thousands)

The following is a summary of property, plant and equipment by classification as of December 3 1, 2001:

Asset Class Clinton OYC TMI Common Total Plant & generation

$39,229

$19,635

$76,414

$7,735

$143,013 Computer equipment 12,719 9,575 22,294 Fumiture & fixtures 1,795 215 1,327 3,337 Other 2,784 1,006 392 4,182 Total 56,527 20,856 87,708 7,735 172,826 Less accumulated depreciation 2,210 2,442 3,325 1,545 9,522 Property, plant and equipment, net

$54,317

$18,414

$84,383

$6,190

$163,304 Cash and Cash Equivalents AmerGen considers all temporary cash investments purchased with an original maturity of three months or less to be cash equivalents.

Marketable Securities Marketable securities are classified as available-for-sale securities and are reported at fair value, with the unrealized gains and losses, net of tax, reported in other comprehensive income. The cost of these securities is determined on the basis of specific identification. At December 31, 2002 and 2001, AmerGen had no held-to-maturity or trading securities.

Unrealized gains and losses on marketable securities held in the nuclear decommissioning trust funds are reported in accumulated other comprehensive income.

Inventories Materials and supplies inventories are carried at the lower of average cost or market.

Fair Value of Financial Instruments As of December 31, 2002 and 2001, AmerGen's carrying amounts of cash and cash equivalents and accounts receivable are representative of fair value because of the short-term nature of these instruments.

Reclassification Certain prior year amounts have been reclassified to conform to the current year presentation.

New Accounting Pronouncements In 2001, the FASB issued SFAS No. 141, "Business Combinations" (SFAS No. 141), SFAS No. 142 "Goodwill and Other Intangible Assets" (SFAS No. 142), SFAS No. 143, "Asset Retirement Obligations" (SFAS No. 143), and SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS No. 144).

SFAS No. 141 requires that all business combinations initiated after June 1, 2001, be accounted for under the purchase method of accounting and establishes criteria for the separate recognition of intangible assets acquired in business combinations. In addition, SFAS No. 141 requires that 7

AmerGen Energy Company, LLC Notes to Financial Statements December 31, 2002 and 2001 (Dollars in thousands) unamortized negative goodwill related to pre July 1, 2001 purchases be recognized as a change in accounting principle concurrent with the adoption of SFAS No. 142. AmerGen adopted SFAS No. 142 as of January 1, 2002. As of December 31, 2001, $43 million in excess of acquired net assets over cost (negative goodwill), net of accumulated amortization, was included in the statement of position. Upon the adoption of SFAS No. 142, AmerGen recognized approximately $43 million, pre-tax, as a cumulative effect of a change in accounting principle.

SFAS No. 142 establishes new accounting and reporting standards for goodwill and intangible assets.

Under SFAS No. 142, effective January 1, 2002, goodwill recorded by AmerGen is no longer subject to amortization. After January 1, 2002, goodwill will be subject to an assessment for impairment using a two-step fair value based test, the first step of which must be performed at least annually, or more frequently, if events or circumstances indicate that goodwill might be impaired. The first step compares the fair value of a reporting unit to its carrying amount, including goodwill. If the carrying amount of the reporting unit exceeds its fair value, the second step is performed. The second step compares the carrying amount of the goodwill to the fair value of the goodwill. If the fair value of the goodwill is less than the carrying amount, an impairment loss would be reported as a reduction to goodwill and a charge to operating expense, except at the transition date, when the loss would be reflected as a cumulative effect of a change in accounting principle. At December 31, 2002, AmerGen's balance sheet reflects approximately $34 million in goodwill, net of accumulated amortization. Annual amortization of goodwill was discontinued upon adoption of SFAS No. 142.

The first step of the transitional impairment analysis performed at December 31, 2002 indicates that goodwill is not impaired.

SFAS No. 143 provides accounting requirements for retirement obligations associated with tangible long-lived assets. AmerGen adopted SFAS No. 143 on January 1, 2003. Retirement obligations associated with long-lived assets included within the scope of SFAS No. 143 are those for which there is a legal obligation to settle under existing or enacted law, statute, written or oral contract or by legal construction under the doctrine of promissory estoppel. An estimate of the fair value of the decommissioning obligation for each of the plants was recorded as a liability on the Company's balance sheet on each of the respective acquisition dates. This liability has then been escalated at a rate of 4% per year. The January 1, 2003 adoption of SFAS No. 143 requires a cumulative effect adjustment effective at the date of adoption to adjust plant assets and decommissioning liabilities to the values they would have been had this standard been employed from the acquisition dates of the plants, which is approximately $548 million.

The effect of this cumulative adjustment will be the accrual of an asset related to the full amount of the decommissioning obligation less accumulated depreciation from the acquisition date, which will be amortized over the remaining life of the plant. The difference between the amounts of assets and decommissioning liabilities recognized under SFAS No. 143 and the existing decommissioning liability recorded, which will be reversed, will be credited to earnings and recognized as the cumulative effect of the accounting change.

SFAS No. 144 establishes accounting and reporting standards for both the impairment and disposal of long-lived assets. This statement is effective as of January 1, 2002 and provisions of this statement are generally applied prospectively. AmerGen adopted this standard with no material impact to the Company's results of operations.

8

AmerGen Energy Company, LLC Notes to Financial Statements December 31, 2002 and 2001 (Dollars in thousands)

In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" (SFAS No. 146). SFAS No. 146 requires that the liability for costs associated with exit or disposal activities be recognized when incurred, rather than at the date of a commitment to an exit or disposal plan. SFAS No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002.

In November 2002, the FASB released FASB Interpretation (FIN) No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others," providing for expanded disclosures and recognition of a liability for the fair value of the obligation undertaken by the guarantor. Under FIN No. 45, guarantors are required to disclose the nature of the guarantee, the maximum amount of potential future payments, the carrying amount of the liability and the nature and amount of recourse provisions or available collateral that would be recoverable by the guarantor. AmerGen adopted the provisions of FIN No. 45 effective December 31, 2002. The recognition and measurement provisions of FIN No. 45 are effective, on a prospective basis, for guarantees issued or modified after December 31, 2002.

2. Customers For the years ended December 31, 2002 and 2001, two customers, Illinois Power Company (IP) and GPU Nuclear, Inc. (GPU), accounted for approximately 57% and 91%, respectively, of revenues.

AmerGen entered into purchase power agreements with IP expiring December 31, 2004 and with GPU expiring March 31, 2003 for OC. Upon termination of the purchase power agreements, all output will be sold to the Exelon Power Team for wholesale marketing.

3. Commitments and Contingencies Capital Commitments AmerGen estimates that it will spend approximately $165 million on capital expenditures in 2003 for its existing facilities.

Nuclear Insurance The Price-Anderson Act limits the liability of nuclear reactor owners for claims that could arise from a single incident. As of January 1, 2003, the current limit is $9.5 billion and is subject to change to account for the effects of inflation and changes in the number of licensed reactors. AmerGen carries the maximum available commercial insurance of $300 million and the remaining $9.2 billion is provided through mandatory participation in a financial protection pool. Under the Price-Anderson Act, all nuclear reactor licensees can be assessed up to $89 million per reactor per incident, payable at no more than $10 million per reactor per incident per year. This assessment is subject to inflation and state premium taxes. If required, Exelon and BE have guaranteed payment of this assessment. In addition, the U.S. Congress could impose revenue-raising measures on the nuclear industry to pay claims. The Price-Anderson Act expired on August 1, 2002, but existing facilities, including those owned and operated by AmerGen, remain covered. The U.S. Congress has extended the provisions of the Price-Anderson Act related to commercial facilities through 2003. The extension was passed as part of the Consolidated Appropriations Resolution, 2003, which will be presented to the President of the United States for his Signature. The extension would affect facilities obtaining NRC operating licenses in 2003. Existing facilities are unaffected by the extension.

AmerGen carries property damage, decontamination and premature decommissioning insurance for each station's loss resulting from damage to its nuclear plants. In the event of an accident, insurance 9

AmerGen Energy Company, LLC Notes to Financial Statements December 31, 2002 and 2001 (Dollars in thousands) proceeds must first be used for reactor stabilization and site decontamination. If a decision is made to decommission a facility, a portion of the insurance proceeds will be allocated to a fund which AmerGen is required by the NRC to maintain to provide for decommissioning the facility. AmerGen is unable to predict the timing of the availability of insurance proceeds or the amount of such proceeds which would be available. Under the terms of the various insurance agreements, AmerGen could be assessed up to $40 million for losses incurred at any plant insured by the insurance companies. In the event that one or more acts of terrorism cause accidental property damage within a twelve-month period from the first accidental property damage under one or more policies for all insureds, the maximum recovery for all losses by all insureds will be an aggregate of $3.2 billion plus such additional amounts as the insurer may recover for all such losses from reinsurance, indemnity, and any other source, applicable to such losses. The $3.2 billion maximum recovery limit is not applicable, however, in the event of a "certified act of terrorism" as defined in the Terrorism Risk Insurance Act of 2002, as a result of government indemnity. Generally, a "certified act of terrorism" is defmed in the Terrorism Risk Insurance Act to be any act, certified by the U.S. Government, to be an act of terrorism committed on behalf of a foreign person or interest.

Additionally, AmerGen is a member of an industry mutual insurance company that provides replacement power cost insurance in the event of a major accidental outage at a nuclear station. The premium for this coverage is subject to assessment for adverse loss experience. AmerGen's maximum share of any assessment is $16 million per year. Recovery under this insurance for terrorist acts is subject to the $3.2 billion aggregate limit and secondary to the property insurable described above.

This limit would also not apply in cases of certified acts of terrorism under the Terrorism Rick Insurance Act as described above.

AmerGen is self-insured to the extent that any losses may exceed the amount of insurance maintained. Such losses could have a material adverse effect on AmerGen's financial condition and results of operations.

Nuclear Decommissioning The Company's current estimate of its total future nuclear decommissioning costs is $3.5 billion and considers future increases in cost due to inflation. An estimate of the fair values of the decommissioning obligations totaling approximately $860 million was recorded as a liability on the Company's balance sheet at the dates of the TMI, CNPS, and OC acquisitions. The liability has then been escalated at 4% per year through June 30, 2002. Effective July 1, 2002, generation changed its accounting estimates related to decommissioning of their generating plants. The liability is now being escalated at 2.4% per year resulting in the estimated fair value of decommissioning of $962 million at December 31, 2002. As of December 31, 2002, AmerGen held $1.0 billion in trust to fund its decommissioning liability. This amount has been reflected as a long-term asset in the Company's balance sheet. The decommissioning fund asset is carried at fair value and includes both realized and unrealized gains. Net unrealized gains and losses are recognized as a component of members' equity.

Net realized gains are recognized in the Company's results of operations.

At December 31, 2002 and 2001, the assets of the decommissioning funds were invested approximately 15.1% and 24.8% in equity securities, 61.1% and 60.4% in fixed income obligations, 18.2% and 12.9% in collective trust funds, and the remainder in other short-term interest bearing accounts.

10

AmerGen Energy Company, LLC Notes to Financial Statements December 31, 2002 and 2001 (Dollars in thousands)

Spent Fuel Storage Under the Nuclear Waste Policy Act of 1982 (NWPA), the U.S. Department of Energy (DOE) is required to take possession of all spent nuclear fuel generated by AmerGen's nuclear units for long-term storage. AmerGen pays the DOE one mill ($.001) per kilowatt-hour of net nuclear generation for the cost of nuclear fuel long-term storage and disposal. This fee may be adjusted prospectively to ensure full cost recovery. The NWPA required the DOE to begin taking possession of spent nuclear fuel generated by nuclear generating units by no later than January 1998. The DOE, however, failed to meet that deadline and its performance is expected to be delayed significantly. The DOE's current estimate for opening a spent nuclear fuel storage facility is 2010. This extended delay has led to AmerGen's use of dry storage at Oyster Creek. Approximately $3.5 million and $2.4 million was accrued at December 31, 2002 and 2001, respectively, related to the cost of long term storage and disposal.

Pennsylvania Real Estate Tax Appeals AmerGen is involved in an appeal of its property tax assessment by the County of Dauphin, Pennsylvania associated with TMI. The Company has estimated its liability to be $4.1 million and

$2.7 million, respectively, which has been accrued as of December 31, 2002 and 2001. The Company does not believe the outcome of this matter will have a material adverse effect on AmerGen's results of operations.

Environmental Litigation On December 11, 2002, AmerGen received a notice of violation from the New Jersey Department of Environmental Protection of a substantial fish kill, which occurred on September 23, 2002 at OC, resulting from the shutdown of dilution pumps during maintenance. The New Jersey Department of Environmental Protection has assessed civil penalties and claims for natural damage to the state totaling $0.4 million relating to the incident. In addition to the notice of violation, the Attorney General of the State of New Jersey has commenced a criminal investigation into the circumstances surrounding the fish kill. AmerGen is cooperating fully with the Attorney General in its investigation and is working to settle the civil penalty and damage claims in conjunction with the investigation.

General AmerGen is involved in various other litigation matters. The ultimate outcome of such matters, while uncertain, is not expected to have a material adverse effect on the Company's financial condition or results of operations.

TMI Contingent Price Adjustment On December 18, 2001, pursuant to the Asset Purchase Agreement, AmerGen and Generation executed a new PPA for TMI that covers the period January 1, 2002 through December 31, 2014. In May 2002, Generation discovered that the price schedule in the signed PPA was based on what Generation believes was an incorrect price curve. Therefore, Generation's position is that the PPA executed in December 2001 reflects prices that are higher than Generation anticipated paying to AmerGen. BE disputes this. Generation has developed an amended PPA for 2003 and beyond, which includes the lower price curve. This amended PPA has not been executed. Generation and BE have invoked the dispute resolution provisions of the AmerGen LLC Agreement, as amended August 1, 2000, to resolve the matter and have submitted the dispute for arbitration. If the arbitrators rule in favor of Generation, AmerGen will be required to pay Generation approximately $14 million for the year ended December 31, 2002. The corresponding amount for the year ended December 31, 2003 is currently estimated to be $10 million. AmerGen is unable to predict the outcome of the arbitration.

11

AmerGen Energy Company, LLC Notes to Financial Statements December 31, 2002 and 2001 (Dollars in thousands)

4. Notes Receivable During 1999, in connection with the acquisition of CNPS, AmerGen received from IP a note to be paid in five annual installments of $5 million. The final payment is due no later than December 31, 2004. The note has been recorded at its net present value based on an imputed interest rate of 6.2%.

5. Goodwill The amount of goodwill or the excess of acquired net assets over cost ("negative goodwill") was as follows at December 31, 2002 and 2001:

Balance at January 1, 2001 Purchase price adjustment (a)

Amortization Balance at December 31, 2001 SFAS 142 implementation Amortization Balance at December 31, 2002 CNPS

$ 24,666 5,901 (1,412) 29,155

$ 29,155 TMI

$ (3,632) 10,084 (1,168) 5,284 5,284 oc

$ (55,273) 6,654 5,221 (43,398) 43,398 Total

$ (34,239) 22,639 2,641 (8,959) 43,398

$ 34,439 (a) Trust income taxes on decommissioning funds at the acquisition dates.

CNPS TMI oc Total Balance at January 1, 2000 Acquisition of Oyster Creek Purchase price adjustment (a)

Amortization Balance at December 31, 2000 Purchase price adjustment (b)

Amortization Balance at December 31, 2001 12,695 (26,551)-

12,504 (533) 24,666 5,901 (1,412) 29,155 20,846 2,073 (3,632) 10,084 (1,168) 5,284 (13,856)

(58,609)

(58,609) 33,350 3,336 4,876 (55,273) 6,654 5,221 (43,398)

(34,239) 22,639 2,641 (8,959)

(a) Principally a change in estimate of employee benefit obligations assumed at the acquisition dates.

(b) Trust income taxes on decommissioning funds at the acquisition dates.

12

AmerGen Energy Company, LLC Notes to Financial Statements December 31, 2002 and 2001 (Dollars in thousands)

6. Long-term Debt During 1999, in connection with the acquisition of TMI, AmerGen entered into a fnancing agreement with GPU, Jersey Central Power & Light Company, Metropolitan Edison Company, and Pennsylvania Electric Company. The loan is to be paid in five annual installments of $15.6 million.

The final payment is due December 20, 2004. The note has been recorded at its net present value based on an imputed interest rate of 6.2%.

During 2000, in connection with the acquisition of OC, AmerGen entered into a financing agreement with GPU, the former owners of OC. In accordance with the asset purchase agreement, GPU funded AmerGen's outage expenditures up to $88.7 million for the 2000 refueling outage. The loan is to be repaid in nine annual installments with the final payment due no later than August 8, 2009. As of December 31, 2002, $75 million is due to GPU and has been recorded at its net present value based on an imputed rate of 6.33%.

In 2002, AmerGen renewed its membership with Electric Power Research Institute, Inc. ("EPRI"). In connection with this membership, AmerGen entered into a financing agreement with EPRI. The loan is to be paid in a lump sum of $1 million due April 1, 2004. The loan is recorded at its book value with no stated interest rate.

Maturities of long-term debt are:

For years ended December 31, 2003

$ 25,505 2004 26,505 2005 9,861 2006 9,861 2007 9,861 Thereafter 19,722

7. Leases The Company has entered into operating leases involving certain facilities and equipment. Rental expense under operating leases was approximately $979 in 2002 and $791 in 2001. The Company has not entered into any lease that would be classified as a capital lease. Minimum future payments under non-cancelable operating leases as of December 31, 2002 were as follows:

For Years Ended December 31, 2003

$ 1,205 2004 787 2005 787 2006 775 2007 227 Thereafter 9

$3,790 13

AmerGen Energy Company, LLC Notes to Financial Statements December 31, 2002 and 2001 (Dollars in thousands)

8. Taxes Other Than Income The following is an analysis of tax expense for the years ended December 31, 2002 and 2001:

2002 Real estate Capital stock Payroll Use tax and other Total

$ 13,737 1,697 10,870 180 2001

$17,118 (2) 7,861 87

$26,484

$25,064

9. Pension and Other Postretirement Benefits Effective January 1, 2000, the Company began defined benefit pension and postretirement benefit plans. The plans are applicable to all employees with at least one year of service.

The following tables provide a reconciliation of benefit obligations, fair value of plan assets, funded status and costs at December 31, 2002 and 2001.

• Pension Benefits 2002 2001 Change in benefit obligation:

Net benefit obligation at beginning of year Service cost Interest cost Plan amendments Actuarial gain Gross benefits paid 34,478 9,006 3,224 240 5,505 (1,747)

$24,423 8,196 2,397 1,027 (1,565)

Other Postretirement Benefits 2002 2001 67,459 4,810 3,504

$60,988 2,713 4,082 (16,071)

(324)

Net benefit obligation at end of year 50,706

$34,478 59,702

$67,459 14

AmerGen Energy Company, LLC Notes to Financial Statements December 31, 2002 and 2001 (Dollars in thousands)

Pension Benefits 2002 2001 Other Postretirement Benefits 2002 2001 Change in Plan assets:

Fair value of plan assets at beginning of year Actual return on plan assets Employer contributions Gross benefits paid Fair value of plan assets at end of year 26,914 9,719 Funded status at end of year Unrecognized net actuarial (gain)/loss Unrecognized prior service cost Net amount recognized at end of year (23,792) 10,950 645 (24,760) 2,178 452

$ (12,197)

S(22,130)

(59,702)

(10,508)

(67,458) 6,158 (70,210)

$(61,300)

Pension Benefits 2002 2001 Post-Retirement Benefits 2002 2001 Components of net periodic benefit cost:

Service cost Interest cost Expected return on assets Amortization of:

Prior service cost Actuarial (gain)loss Net periodic benefit cost 9,006 3,224 (1,669)

$ 8,196 2,397 (348) 47 31 10,608 10,276 (12) 10,596

$10,276 1,510 8,910

$ 6,795 For measurement purposes, an 8.5% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2002. The rate was assumed to decrease to 4.5% in 2008 and remain at that level thereafter.

Weighted average assumptions at December 31, 2002 Discount rate Expected return on plan assets Rate of compensation increase Pension Benefits 6.75%

9.50%

5.00%

Postretirement Benefits 6.75%

5.00%

15

$9,719 (1,587) 20,529 (1,747) 827 322 10,135 (1,565)

Other 4,811 3,504 (915) 7,400 Total cost

$ 2,713 4,082 6,795

AmerGen Energy Company, LLC Notes to Financial Statements December 31, 2002 and 2001 (Dollars in thousands)

10. Supplemental Cash Flow Information As discussed in Note 1, AmerGen files a partnership return for federal and state income taxes. Taxes are paid by its equity members, and as such no income taxes were paid by AmerGen.

Taxes were paid by the decommissioning trust fund for the years ended December 31, 2002 and 2001 in the amount of $5.8 million and $20.7 million, respectively.

Interest paid on the loan from Generation for 2002 was $2 million. There was no interest paid in 2001.

11. Affiliated Company Transactions AmerGen has entered into PPAs dated December 18, 2001 and November 22, 1999 with Generation.

Under the 2001 PPA, AmerGen has agreed to sell to Generation all the energy from TMI from January 1, 2002 through December 31, 2014. Under the 1999 PPA, AmerGen has agreed to sell to Generation all of the residual energy from CNPS, through December 31, 2004. Currently, the residual output approximates 25% of the total output of CNPS. For the years ended December 31, 2002 and 2001 the amount of power purchased by Generation recorded in the statements of operations is $273 million and $56.9 million, respectively. At December 31, 2002 and 2001 AmerGen had a receivable due from Exelon Generation of $17.1 million and $3.2 million, respectively.

In addition, under a service agreement dated March 1, 1999, Generation provides AmerGen with certain operation and support services to the nuclear facilities owned by AmerGen. This service agreement has an indefinite term and may be terninated by Generation or by AmerGen on 90 days' notice. Generation is compensated for these services in an amount agreed to in the work order but not less than the higher of its fully allocated costs for performing the services or the market price. For the years ended December 31, 2002 and 2001, the amount charged to AmerGen for these services was

$70 million and $80.5 million, respectively. At December 31, 2002 and 2001, AmerGen had a payable to Generation of $22.6 million and $47.3 million, respectively.

BE provides employees to AmerGen to manage and operate certain aspects of the Company's nuclear operations. During 2002 and 2001, AmerGen incurred $2.0 million and $1.7 million, respectively, in costs for these employees as well as for other administrative services. At December 31, 2002 and 2001, AmerGen had a payable to British Energy of $0.5 million and $0.9 million, respectively.

Generation has committed to provide AmerGen with capital contributions equivalent to 50% of the purchase price of any acquisitions AmerGen makes in 2003. Generation and BE have each agreed to provide up to $100 million to AmerGen at any time for operating expenses.

AmerGen also provides certain operating services to Generation's plants. During 2002 and 2001, AmerGen provided services of approximately $6.6 million and $2.0 million, respectively, to Generation. At December 31, 2002 and 2001, AmerGen had a receivable from Generation of $2.0 million and $2.0 million, respectively.

On July 18, 2002, AmerGen and Generation amended their original loan agreement dated February 12, 2002. Under this amended agreement, AmerGen has the ability to enter into a revolving demand loan up to but not exceeding $100 million. Principal payments are due upon demand by Generation 16

AmerGen Energy Company, LLC Notes to Financial Statements December 31, 2002 and 2001 (Dollars in thousands) but no later than July 1, 2003. As of December 31, 2002, AmerGen had borrowed $35 million under this loan agreement. The interest rate on the loan is one-month LIBOR plus 2.25% and is payable monthly.

12. Comprehensive Income December 31,2002 Accumulated Other Retained Comprehensive Comprehensive Earnings Income Income (Loss)

Beginning balance

$154,540

$ (36,330)

$112,377 Net income 161,030 161,030 Unrealized losses on securities (41,153)

(41,153)

Ending balance

$315,570

$ (77,483)

$232,254 December 31,2001 Accumulated Other Retained Comprehensive Comprehensive Earnings Income Income (Loss)

Beginning balance

$ (1,747) 7,580 Net income 156,287 156,287 Unrealized losses on securities (43,910)

(43,910)

Ending balance

$ 154,540

$ (36,330)

$ 112,377 In accordance with SFAS 130, unrealized gains and losses in the market value of decommissioning trust funds are reflected as other comprehensive income, a component of members' equity.

13. Subsequent Event In accordance with the restructuring principles announced on November 28, 2002, BE is continuing to take steps to realize its 50% interest in AmerGen and to be in a position to execute a sale agreement by June 30, 2003.

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