ML041630146

2003 Annual Financial Report for Amergen Energy Company, LLC

ML041630146
Person / Time
Site:	Oyster Creek, Clinton, Crane
Issue date:	06/07/2004
From:	Gallagher M AmerGen Energy Co
To:	Document Control Desk, Office of Nuclear Reactor Regulation
References
2130-03-20123, 5928-03-20151
Download: ML041630146 (25)

Text

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

June 7, 2004 5928-03-20151 2130-03-20123 U.S. Nuclear Regulatory Commission Attn: Document Control Desk Washington, DC 20555-0001 Three Mile Island (TMI), UNIT 1 Operating License No. DPR-50 NRC Docket No. 50-289 Clinton Power Station (CPS)

Operating License No. NPF-62 NRC Docket No. 50-461 Oyster Creek Generating Station (Oyster Creek)

Operating License No. DPR-16 NRC Docket No. 50-219

Subject:

AMERGEN ENERGY COMPANY, LLC (AmerGen)

Annual Financial Statements Attached is the 2003 Annual Financial Report for AmerGen Energy Company, LLC, operator of Three Mile Island, Unit 1, Clinton Power Station, and Oyster Creek Generating Station. This Annual Report contains the annual financial statements for 2003. 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 -- January 1, 2003 through December 21, 2003 and the Year Ended December 31, 2002

U.S. Nuclear Regulatory Commission June 7, 2003 Page 2 cc:

H. J. Miller, USNRC, Regional Administrator, Region I J. L. Caldwell, USNRC, Regional Administrator, Region IlIl D. M. Kern, USNRC, Senior Resident Inspector, TMI-1 R. J. Summers, 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 D. M. Skay, 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) w/ Enclosure w/o Enclosure Is it

AmerGen Energy Company LLC Financial Statements for the Period from January 1, 2003 through December 21, 2003 and the Year Ended December 31, 2002

AmerGen Energy Company, LLC Table of Contents December21, 2003 and December 31, 2002 Page(s)

Report of Independent Auditors I

Financial Statements Statements of Position as of December 21, 2003 and December 31, 2002 2

Statements of Operations and Changes in Members' Equity for the period from January 1, 2003 through December 21, 2003 and the year ended December 31, 2002 3

Statements of Cash Flows for the period from January 1, 2003 through December 21, 2003 and the year ended December 31,2002 4

Notes to Financial Statements 5 - 20

PJCEWATEJIdOUSE@OPERS a PricewaterhouseCoopers LLP Two Commerce Square, Suite 1700 2001 Market Street Philadelphia PA 19103 Telephone (267) 330 3000 Facsimile (267) 330 3300 Report of Independent Auditors 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 21, 2003 and December 31, 2002, and the results of its operations and its cash flows for the period and year, respectively, 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 1 to the financial statements, the Company adopted the provisions of Statement of Financial Accounting Standards No. 143, Asset Retirement Obligations, effective January 1, 2003 and the provisions of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, effective January 1, 2002.

As discussed in Note 2 to the financial statements, the 2002 financial statements have been restated for the correction of an error related to recording of gains and losses on investments held by the nuclear decommissioning trust funds.

May 21, 2004

AmerGen Energy Company, LLC Statements of Position As of December 21, 2003 and December 31, 2002 (Restated - Note 2)

(Dollars in thousands)

I)ecember 21 Assets Current Assets Cash and cash equivalents Accounts receivable Due from affiliates, net Notes receivable, net Materials and supplies Prepaid expenses and other Total current assets Fixed Assets Property, plant and equipment, net of accumulated depreciation of S44,354 and $26,930 in 2003 and 2002, respectively Construction work in progress Nuclear fuel, net of accumulated amortization Total fixed assets Other Long Term Assets Nuclear decommissioning trust funds Notes receivable, net Goodwill, net Total other long term assets Total assets 2003 66,022 20,545 4,483 4,986 36,480 7,325 139,841 December 31 2002 S

14,313 29,446 4,421 30,359 7,261 85,800 354,892 32,099 178,552 565,543 270,761 27,720 155,599 454,080 1,108,135 1,108,135 1,813,519 1,001,889 4,696 34,439 1,041,024 1,580,904 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 Asset retirement obligation 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 S

6,945 113,543 42,148 1,780 82,105 25,505 3,946 35,000 1,899 150,235 2,452 165,088 432,150 38,910 14,379 78,647 10,790 574,876 739,964 962,496 60,020 12,197 70,210 11,296 1,116,219 1,266,454 40,110 40,110 (35,750) 269,980 314,450 1,580,904 40,110 40,110 39,335 954,000 1,073,555 1,813,519 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 Period from January 1, 2003 through December 21, 2003 and the Year Ending December 31, 2002 (Restated - Note 2)

(Dollars in thousands)

December 21 December 31 2003 2002 Operating revenue Operating expense Fuel Operating and maintenance Depreciation and amortization Other taxes Total operating expense 622,706 644,043 67,546 412,783 17,222 26,301 523,852 64,694 411,653 17,439 26,484 520,270 123,773 (48,682) 25,813 6,859 Operating income 98,854 Interest expense Investment income on decommissioning trust funds Other income, net (4,470) 43,567 10,657 Income before change in accounting principle 148,608 107,763 Cumulative effect of change in accounting principle 535,412 43,398 Net income 684,020 151,161 Members' equity (deficit), beginning of year Members' equity, end of year 269,980 954,000 118,819 269,980 The accompanying notes are an integral part of these financial statements.

3

AmerGen Energy Company, LLC Statements of Cash Flows For the Period from January 1, 2003 through December 21, 2003 and the Year Ended December 31, 2002 (restated - Note 2)

(Dollars in thousands)

December 21 December 31 2003 2002 Cash flows from operating activities:

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

Decommissioning expense Amortization of nuclear fuel Depreciation expense Cumulative effect of change in accounting principle Pension expense greater (less) than funding Net realized gains on decommissioning trust funds Postretirement benefits expense Amortization of discount/premium Other 684,020 151,161 30,474 48,542 17,222 (535,412) 2,182 (10,381) 8,437 4,604 (5,704) 41,609 45,666 17,420 (43,398)

(9,933)

(7,928) 8,910 6,428 9,136 Changes in working capital:

Accounts receivable Materials and supplies Other current assets Accounts payable Accrued severance costs Due from affiliates, net 8,901 (6,121) 436 31,438 553 (8,429) 270,762 Net cash provided by operating activities 15,517 (7,854)

(233)

(33,982) 1,899 (39,075) 155,343 (70,821)

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

(179,051)

Cash flows from investing activities:

Investment in property, plant and equipment Investment in nuclear fuel Proceeds from note receivable Proceeds from decommissioning trust fund Investment in decommissioning trust fund Net cash used in investing activities (69,432)

(98,853) 4,986 1,100,855 (1,116,913)

(179,357)

Cash flows from fmancing activities Book overdraft Issuance (repayment) of note payable Repayment of long-term debt Net cash provided by (used in) financing activities Net increase (decrease) in cash Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year 5,165 (35,000)

(9,861)

(39,696) 51,709 14,313 66,022 1,780 35,000 (25,505) 11,275 (12,433) 26,746 S

14,313 The accompanying notes are an integral part of these financial statements.

4

AmerGen Energy Company, LLC Notes to Financial Statements December 21, 2003 and December 31, 2002 (Dollars in thousands)

1. Significant Accounting Policies Description of Business and Basis of Presentation AmerGen Energy Company, LLC (AmerGen or the Company) was formed by PECO Energy Company, Inc. (PECO), a wholly owned subsidiary of Exelon Corporation (Exelon) and British Energy, Inc. (BE), a wholly-owned subsidiary of British Energy, plc, 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) and both Generation and BE held 50% ownership shares in AmerGen.

AmerGen currently owns and operates the Clinton Nuclear Power Station (CNPS) in Clinton, Illinois, Three Mile Island Unit No. I (TMI) located in Middletown, Pennsylvania and the Oyster Creek Nuclear Generating Station (OC) located in Forked River, New Jersey.

In 2003, Exelon entered into an agreement to purchase the share of AmerGen which was owned by BE. The sale was consummated on December 22, 2003. These financial statements as of December 21, 2003 do not reflect any adjustments which would be required in the financial statements of AmerGen as a result of this purchase of BE's ownership share and do not purport to reflect the assets and liabilities of AmerGen for any period subsequent to December 21, 2003.

Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States (GAAP) requires management to make 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 and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Areas in which significant estimates have been made include, but are not limited to, the accounting for nuclear decommissioning, fixed asset depreciation, severance, pension and other postretirement benefits, and unbilled energy revenues.

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.

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.

Income taxes of $4.0 million and $3.9 million (restated) related to the qualified decommissioning trusts are included in investment income for the period from January 1, 2003 through December 21, 2003 and the year ended December 31, 2002, respectively.

5

AmerGen Energy Company, LLC Notes to Financial Statements December 21, 2003 and December 31, 2002 (Dollars in thousands)

Comprehensive Income Comprehensive income includes all changes in equity during a period except those resulting from investments by and distributions to the partners.

Comprehensive income primarily relates to unrealized gains or losses on securities held in nuclear decommissioning trust funds.

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

Accounts Receivable Customer accounts receivable at December 21, 2003 and December 31, 2002 included $21 million and $29 million of unbilled operating revenues related to amounts of energy delivered to customers in the period and month then ended, respectively.

Inventories Materials and supplies inventory generally includes the average costs of generating plant materials.

Materials are generally charged to inventory when purchased and then expensed or capitalized to plant, as appropriate, when installed. Provisions are made for obsolete inventory.

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 21, 2003 and December 31, 2002, 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. See Note 2, Restatement.

Investment income on decommissioning trust funds includes interest, dividends and realized gains and losses and is net of income taxes on the qualified decommissioning trust funds and investment management and custodian fees.

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.

6

AmerGen Energy Company, LLC Notes to Financial Statements December 21, 2003 and December 31, 2002 (Dollars in thousands)

The following is a summary of property, plant and equipment by classification as of December 21, 2003:

Asset Class CNPS Plant & generation 5 157,247 Computer equipment 16,125 Furniture and fixtures 3,190 Other 1,685 Total 178,247 Less accumulated depreciation 13,316 Property, plant and equipment, net S 164,931 OC

$ 33,861 9,700 1,904 1,126 TMI

$ 151,999 9,562 1,331 398 Common

$ 11,118 Total

$ 343,107 46,505 6,425 3,209 46,591 163,290 11,118 399,246 9,633 16,353 5,052 44,354 S 36,958 S 146,937 6,066

$ 354,892 The following is a summary of property, plant and equipment by classification as of December 31, 2002:

Asset Class Plant & generation Computer equipment Furniture & fixtures Other Total Less accumulated depreciation Property, plant and equipment, net CNPS 153,238 16,125 3,190 3.042 OC

$ 19,336 9,698 1,687 1.125 TIl

$ 73,289 9,562 1,331 398 Common Total

$ 245,863 5,670 41,055 6,208 4.565 175,595 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 Nuclear Fuel The cost of nuclear fuel is capitalized and charged to fuel expense using the unit of production method. Estimated costs of nuclear fuel storage and disposal, exclusive of dry cask storage costs, at operating plants are charged to fuel expense as the related fuel is consumed. Costs associated with nuclear outages are recorded in the period incurred. Dry cask storage costs are expensed as incurred.

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:

7

AmerGen Energy Company, LLC Notes to Financial Statements December 21, 2003 and December 31, 2002 (Dollars in thousands)

Asset Category CNPS TUI OC Generation and common plant 26 years 13 years 9 years Other property and equipment 10 years 10 years 9 years Capitalized Interest AmerGen uses Statement of Financial Accounting Standards ("SFAS") No. 34, "Capitalizing Interest Costs," to calculate the costs during construction of debt funds used to finance its construction projects. ArnerGen recorded capitalized interest of $426 and $29, during the period from January 1, 2003 through December 21, 2003 and the year ended December 31, 2002, respectively.

Nuclear Decommissioning AmerGen accounts for the costs of decommissioning its nuclear generating stations in accordance with SFAS No. 143. See Note 3, Nuclear Decommissioning and Spent Fuel Storage, for information regarding the adoption and application of SFAS No. 143.

Fair Value of Financial Instruments As of December 21, 2003 and December 31, 2002, 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 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.

8

AmerGen Energy Company, LLC Notes to Financial Statements December 21, 2003 and December 31, 2002 (Dollars in thousands)

SFAS No. 142 established 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 is 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 reflected 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 indicated that goodwill was not impaired. As further discussed in Note 3, the remainder of AmerGen's goodwill was written off upon adoption of SFAS 143 in 2003.

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.

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. AmerGen adopted this standard prospectively on January 1, 2003.

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.

9

AmerGen Energy Company, LLC Notes to Financial Statements December 21, 2003 and December 31, 2002 (Dollars in thousands)

Through AmerGen's postretirement benefit plans, the Company provides retirees with prescription drug coverage.

On December 8, 2003 the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Prescription Drug Act) was enacted. The Prescription Drug Act introduced a prescription drug benefit under Medicare as well as a Federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to the Medicare prescription drug benefit. In response to the enactment of the Prescription Drug Act, the FASB issued FASB Staff Position (FSP) FAS 106-1 (FSP FAS 106-1) in January 2004, which permits a plan sponsor of a postretirement health care plan that provides a prescription drug benefit to make a one-time election to defer the accounting for the effects of the Prescription Drug Act.

AmerGen has made this one-time election allowed by FSP FAS 106-1. Thus, AmerGen's financial statements and Note 9 - Pension and Other Postretirement Benefits do not reflect the effects of the Prescription Drug Act on AmerGen's postretirement plans. AmerGen is evaluating what impact the Prescription Drug Act will have on its postretirement benefit plans and whether it will be eligible for a Federal subsidy beginning in 2006.

Specific authoritative guidance on the accounting for the Federal subsidy is pending, and that guidance, when issued, could require AmerGen to change previously reported information. AmerGen will adopt this standard on January 1, 2004.

Cumulative Effect of Changes in Accounting Principles The following tables set forth AmerGen's net income for the period ended December 21, 2003 and the year ended December 31, 2002 adjusted as if SFAS No. 143 had been applied effective January 1, 2002. SFAS No. 143 was adopted as of January 1, 2003.

2003 2002 (Restated)

Reported net income (loss)

$684,020

$151,161 Earnings effect of adopting SFAS No. 143 532,197 Adjusted net income (loss)

$648,020

$683,358 See Note 3, Nuclear Decommissioning and Spent Fuel Storage, for further information regarding the adoption of SFAS No. 143.

2. Restatement In 2003, AmerGen discovered an error in the methodology being used to calculate gains and losses on the Nuclear Decommissioning Trust Fund assets. As a result, realized and unrealized gains and losses were improperly recorded in periods prior to 2003. The impact of these adjustments is as follows:

10

AmerGen Energy Company, LLC Notes to Financial Statements December 21, 2003 and December 31, 2002 (Dollars in thousands) 2002 2002 (As Originally Reported)

(Restated)

Statement of Position:

Nuclear decommissioning trust funds

$1,001,189

$1,001,189 Other non-current liabilities 7,439 11,296 Accumulated other comprehensive income (77,483)

(35,750)

Member's equity 315,570 269,980 Total members' equity 318,307 314,450 Statement of Operations and Changes in Members' Equity:

Investment income on decommissioning trust funds 35,682 25,813 Other taxes 26,484 26,484 Net income 161,030 151,161 Accumulated other comprehensive income, January 1, 2002 (36,330) 3,887 Members' equity, January 1, 2002 154,540 118,819

3. Nuclear Decommissioning and Spent Fuel Storage Nuclear Decommissioning AmerGen has an obligation to decommission its nuclear power plants. Based on the license lives of the nuclear plants, expenditures are expected to occur primarily during the period 2029 through 2034.

AmerGen had decommissioning assets in trust accounts of $1.1 billion and $1.0 billion as of December 21, 2003 and December 31, 2002, respectively, included as nuclear decommissioning trust funds on AmerGen's Statements of Position. The decommissioning trust funds are carried at fair-value and include both realized and unrealized gains and losses. AmerGen anticipates that all trust fund assets will ultimately be used to decommission AmerGen's nuclear plants.

SFAS No. 143 provides accounting requirements for retirement obligations (whether statutory, contractual or as a result of principles of promissory estoppel) associated with tangible long-lived assets. AmerGen adopted SFAS No. 143 as of January 1, 2003. After considering interpretations of the transitional guidance included in SFAS No. 143, AmerGen recorded income of $535.4 million as a cumulative effect of a change in accounting principle in connection with its adoption of this standard in 2003.

See Note I - Significant Accounting Policies for net income for 2002, adjusted as if SFAS No. 143 had been applied effective January 1, 2002.

The asset retirement obligation (ARO) as of January 1, 2003 was determined under SFAS No. 143 to be $353 million. The following table provides a reconciliation of the previously recorded liabilities for nuclear decommissioning to the ARO reflected on AmerGen's Statements of Position at December 21, 2003 and December 31, 2002:

Decommissioning obligation at December 31, 2002

$962,496 Net reduction due to adoption of SFAS No. 143 (609,467)

Asset retirement obligation at January 1, 2003 353,029 Incremental liability resulting from updated cost study 48,647 Accretion expense for the period from January 1, 2003 to December 21, 2003 30,474 Asset retirement obligation at December 21, 2003

$432,150 11

AmerGen Energy Company, LLC Notes to Financial Statements December 21, 2003 and December 31, 2002 (Dollars in thousands)

Determination ofAsset Retirement Obligation In accordance with SFAS No. 143, a probability-weighted, discounted cash flow model with multiple scenarios was used to determine the "fair value" of the decommissioning obligation. SFAS No. 143 also stipulates that fair value represents the amount a third party would receive for assuming an entity's entire obligation.

The present value of future estimated cash flows was calculated using credit-adjusted, risk-free rates applicable to the various businesses in order to determine the fair value of the decommissioning obligation at the time of adoption of SFAS No. 143.

Significant changes in the assumptions underlying the items discussed above could materially affect the balance sheet amounts and future costs related to decommissioning recorded in the consolidated financial statements.

Effect of Adopting SFAS Ao. 143 AmerGen was required to re-measure the decommissioning liabilities at fair value using the methodology prescribed by SFAS No. 143. The transition provisions of SFAS No. 143 required AmerGen to apply this re-measurement to the historical periods in which AROs were incurred, resulting in a re-measurement of these obligations at the date the related assets were acquired. Since the nuclear plants were acquired by ArnerGen at various dates through 1999 and 2000, AmerGen's historical accounting for its ARO associated with those plants has been revised as if SFAS No. 143 had been in effect at the merger date. As a part of the re-measurement of historical purchase accounting under SFAS No. 143, goodwill remaining on AmerGen's ledger at the adoption the standard was written off because the assumed purchase price allocations would have been lower, resulting in no goodwill at the original purchase date.

At December 31, 2002, prior to the adoption of SFAS No. 143, AmerGen's balance sheet included

$962 million for decommissioning liabilities related to nuclear plants. This amount was reclassified to an ARO upon the adoption of SFAS No. 143 and adjusted to reflect the liability calculated in accordance with the provisions of SFAS No. 143.

Accounting Methodology Under SFAS No. 143 Realized gains and losses and investment income on decommissioning trust funds for nuclear generating stations are reflected in other income and deductions in AmerGen's Statements of Income, while the unrealized gains and losses on marketable securities held in the trust funds are reflected as a component of members' equity. Increases in the ARO are recorded in operating and maintenance expense as accretion expense.

Accounting Prior to the Adoption of SFAS No. 143 Prior to January 1, 2003, AmerGen escalated its decommissioning obligations by 2.4% per year, resulting in a decommissioning liability of $962 million at December 31, 2002. Prior to July 1, 2002, the liability had been escalated at a rate of 4.0% per year. The decommissioning liability was reflected as a long-term liability in the Company's statements of position.

At December 21, 2003 and December 31, 2002, the assets of the decommissioning funds were invested approximately 17.8% and 15.1% in equity securities, 60.0% and 61.1% in fixed income 12

AmerGen Energy Company, LLC Notes to Financial Statements December 21, 2003 and December 31, 2002 (Dollars in thousands) obligations, 20.8% and 18.2% in collective trust funds, and the remainder in other short-term interest bearing accounts.

Spent Fuel Storage Under the Nuclear Waste Policy Act of 1982 (NWPA) and Standard Contracts entered pursuant to that Act, 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 and the Standard Contracts required the DOE to begin taking possession of spent nuclear fuel generated by nuclear generating units by no later than January 31, 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. In order to preserve its rights, AmerGen filed a suit on January 24, 2004 in the United States Court of Federal Claims, seeking unspecified damages resulting from DOE's breach of its obligations in connection with the TMI-l, Oyster Creek, and Clinton stations.

Approximately $4.7 million and $3.5 million was accrued at December 21, 2003 and December 31, 2002, respectively, related to the cost of long-term storage and disposal.

4. Customers For the period ended December 21, 2003 and year ended December 31, 2002, two customers, Illinois Power Company (IP) and First Energy Corp. (FE), formerly GPU Nuclear, Inc., accounted for approximately 33% and 7%, respectively, of revenues. AmerGen entered into purchase power agreements with IP expiring December 31, 2004 for CNPS, and with FE, which expired March 31, 2003 for OC. Upon termination of the purchase power agreements, all output is sold to the Exelon Power Team for wholesale marketing. As of December 21, 2003 the Exelon Power Team accounted for 60% of revenues.

5. Commitments and Contingencies Capital Commitments AmerGen estimates that it will spend approximately $110 million on capital expenditures in 2004 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, 2004, the limit is $10.9 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 for each operating site and the remaining S10.6 billion is provided through mandatory participation in a financial protection pool. Under the Price-Anderson Act, all nuclear reactor licensees can be assessed a maximum charge per reactor per incident. Effective August 20, 2003, the maximum charge per incident (including a 5% surcharge) increased from $89 million to $101 million, payable at no more than $10 million per reactor per incident per year. This assessment is subject to inflation and state premium taxes. Exelon guarantees AmerGen's potential obligation for nuclear insurance premiums and assessments. BE remains a guarantor for any incidents prior to December 21, 2003 when their interest in AmerGen was sold to Exelon. In addition, the U.S. Congress could impose revenue-raising measures on the nuclear industry 13

AmerGen Energy Company, LLC Notes to Financial Statements December 21, 2003 and December 31, 2002 (Dollars in thousands) to pay claims. The Price-Anderson Act expired on August 1, 2002 and was subsequently extended to the end of 2003 by the U.S. Congress. Only facilities applying for NRC licenses subsequent to the expiration of the Price-Anderson Act are affected. Existing commercial generating facilities, such as those owned and operated by AmerGen, remain subject to the provisions of the Price-Anderson Act and are unaffected by its expiration.

AmerGen is a member of an industry mutual insurance company, Nuclear Electric Insurance Limited (NEIL), which provides property damage, decontamination and premature decommissioning insurance for each station for losses resulting from damage to its nuclear plants. In the event of an accident, insurance proceeds must first be used for reactor stabilization and site decontamination. If the decision is made to decommission the 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 to AmerGen and the amount of such proceeds that would be available. As of December 31, 2003, 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 defined 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, NEIL 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. As of December 31, 2003, AmerGen's maximum share of any assessment is $15 million per year. Recovery under this insurance for terrorist acts is subject to the $3.2 billion aggregate limit and secondary to the property insurance described above. This limit would also not apply in cases of certified acts of terrorism under the Terrorism Risk 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.

Pennsylvania Real Estate Tax Appeal 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 $5.3 million and

$4.1 million, respectively, which has been accrued as of December 21, 2003 and December 31, 2002.

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 ("NJDEP") of a substantial fish kill, which occurred on September 23, 2002 at OC, resulting from the shutdown of dilution pumps during maintenance. In March 2004, 14

AmerGen Energy Company, LLC Notes to Financial Statements December 21, 2003 and December 31, 2002 (Dollars in thousands)

AmerGen, NJDEP and the Attorney General of New Jersey agreed in principle to globally resolve the alleged violations in exchange for a $1.0 million payment allocated to civil fines, natural resource damages and charitable contributions to environmental groups.

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.

6. 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%.

7. Goodwill The amount of goodwill or the excess of acquired net assets over cost ("negative goodwill") was as follows at December 21, 2003 and December 31, 2002:

CNPS TMI OC Total Balance at January 1,2002

$ 29,155

$ 5,284

$ (43,398)

$ (8,959)

SFAS 142 implementation 43,398 43,398 Amortization Balance at December 31, 2002 29,155 5,284 34,439 SFAS 143 implementation (29,155)

(5,284)

(34,439)

Amortization Balance at December 21, 2003

8. Long-term Debt During 1999, in connection with the acquisition of TMI, AmerGen entered into a financing 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 21, 2003, $59 million is due to GPU and has been recorded at its net present value based on an imputed rate of 6.33%.

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AmerGen Energy Company, LLC Notes to Financial Statements December 21, 2003 and December 31, 2002 (Dollars in thousands)

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 $1.5 million due April 1, 2004. The loan is recorded at its book value with no stated interest rate.

Maturities of long-term debt are as follows:

For period December 22 through December 31, 2003

$ 15,644 For years ended December 31, 2004 27,005 2005 9,861 2006 9,861 2007 9,861 2008 9,861 Thereafter 9,861

9. Leases The Company has entered into operating leases involving certain facilities and equipment. Rental expense under operating leases was approximately $1.2 million for the period ended December 21, 2003 and $979 for the year ended December 31, 2002. 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 21, 2003 were as follows:

For period December 22 through December 31, 2003 28 For years ended December 31, 2004 1,097 2005 1,097 2006 975 2007 227 2008 Thereafter 9

3,433 16

AmerGen Energy Company, LLC Notes to Financial Statements December 21, 2003 and December 31, 2002 (Dollars in thousands)

10. Other Taxes The following is an analysis of tax expense for the period ended December 21, 2003 and the year ending December 31, 2002:

2003 2002 Real estate Capital stock Payroll Use tax and other

$ 13,324 2,913 9,429 635

$26,301

$ 13,737 1,697 10,870 180 S 26,484 Total

11. 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 21, 2003 and December 31, 2002.

Pension Benefits 2003 2002 Other Postretirement Benefits 2003 2002 Change in benefit obligation:

Net benefit obligation at beginning of year Service cost Interest cost Plan amendments Actuarial gain Gross benefits paid Net benefit obligation at end of year 50,706 9,942 3,930 1,315 3,225 (1,806) 34,478 59,702 9,006 5,299 3,224 3,881 240 5,505 10,641 (1,747) 67,459 4,810 3,504 (16,071) 67,312 50,706 79,523 59,702 17

AmerGen Energy Company, LLC Notes to Financial Statements December 21, 2003 and December 31, 2002 (Dollars in thousands) 20 Pension Benefits 03 2002 Other Postretirement Benefits 2003 2002 Change in Plan assets:

Fair value of plan assets at beginning of year Actual return on plan assets Employer contributions Gross benefits paid 26,914 6,226 9,318 (1,806)

$9,719 (1,587) 20,529 (1,747)

$o Fair value of plan assets at end of year 40,652 26,914 Funded status at end of year Unrecognized net actuarial (gain)lloss Unrecognized prior service cost (26,661) 10,369 1,913 (23,792) 10,950 645 (79,523) 876 (59,702)

(10,508)

Net amount recognized at end of year (14,379)

(12,197)

(78,647)

(70,210)

Pension Benefits 2003 2002 Post-Retirement Benefits 2003 2002 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 9,942 3,930 (2,721) 9,006 3,224 (1,669) 5,299 3,881 4,811 3,504 47 47 302 11,500 10,608 (850) 8,330 (915) 7,400 Other

-(12) 11,500 S

10,596 107 1,510 8,437 8,910 Total cost For measurement purposes, an 8.5% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2003. The rate was assumed to decrease to 4.5% in 2008 and remain at that level thereafter.

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AmerGen Energy Company, LLC Notes to Financial Statements December 21, 2003 and December 31, 2002 (Dollars in thousands)

Weighted average assumptions at Postretirement December 21, 2003 Pension Benefits Benefits Discount rate 6.25%

6.25%

Expected return on plan assets 9.00%

Rate of compensation increase

.5.00%

5.00%

12. 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 period ended December 21, 2003 and the year ending December 31, 2002 in the amount of $4.0 million and $5.8 million, respectively.

Interest was paid on the loan from Generation for the period ended December 21, 2003 and the year ending December 31, 2002 in the amount of $0.6 million and $2 million, respectively.

13. Affiliated Company Transactions AmerGen has entered into PPAs dated June 26, 2003, December 18, 2001, and November 22, 1999 with Generation. Under the 2003 PPA, AmerGen has agreed to sell generation 100% of the energy generated from Oyster Creek through April 9, 2009. 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 period ending December 21, 2003 and the year ended December 31, 2002 the amount of power purchased by Generation recorded in the statements of operations is $371 million and $273 million, respectively. For the period ended December 21, 2003 and the year ended December 31, 2002, AmerGen had a receivable due from Exelon Generation of $17.2 million and $17.1 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 terminated by Generation or by AmerGen on 90 days' notice. Generation is compensated for these services at cost. For the period ending December 21, 2003 and the year ended December 31, 2002, the amount charged to AmerGen for these services was

$50 million and $70 million, respectively. At December 21, 2003 and December 31, 2002, AmerGen had a payable to Generation of $15.1 million and $22.6 million, respectively.

BE provides employees to AmerGen to manage and operate certain aspects of the Company's nuclear operations. During 2003 and 2002, AmerGen incurred $1.5 million and S2.0 million, respectively, in costs for these employees as well as for other administrative services. At December 21, 2003 and December 31,2002, AmerGen had a payable to British Energy of $0.2 million and $0.5 million, respectively.

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AmerGen Energy Company, LLC Notes to Financial Statements December 21, 2003 and December 31, 2002 (Dollars in thousands)

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 2003 and 2002, AmerGen provided services of approximately $6.7 million and $6.6 million, respectively, to Generation.

At December 21, 2003 and December 31, 2002, ArnerGen had a receivable from Generation of $2.5 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 but no later than July 1, 2003. During 2003, AmerGen repaid all amounts outstanding under this loan agreement. The interest rate on the loan is one-month LIBOR plus 2.25% and is payable monthly.

14. Comprehensive Income December 21, 2003 Accumulated Other Comprehensive Income Beginning balance (restated)

Net income Unrealized gains on securities Ending balance Members' Equity 269,980 684,020 954,000 Comprehensive Income (Loss)

(35,750)

S 75,085 39,335 684,020 75,085 759,105 December 31, 2002 (Restated)

Accumulated Other Comprehensive Cc Income Iin Mlembers' Equity imprehensive icome (Loss)

Beginning balance Net income Unrealized losses on securities Ending balance 118,819 151,161 3,887 269,980 (39,637)

S (35,750) 151,161 (39,637)

S 111,524 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.

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