ML19269B787
| ML19269B787 | |
| Person / Time | |
|---|---|
| Site: | Byron, Braidwood  |
| Issue date: | 12/31/1977 |
| From: | Ayers T COMMONWEALTH EDISON CO. |
| To: | |
| Shared Package | |
| ML19269B785 | List: |
| References | |
| NUDOCS 7812040207 | |
| Download: ML19269B787 (20) | |
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SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 I
j FORM 10-Q Quarterly Report Under Section 13 or 15(d) of l
the Securities Exchange Act of 1934 l
For Quarter Ended September 30,1978 Commission File Number 1-1839 i
COMMONWEALTH EDISON COMPANY (Exact narne of registrant as specified in its charter)
ILLINOIS 36-0938600 (State or other jurisdiction of incorporation or organization)
Id t ficat n No.)
37th Floor, One First National Plaza, Post Office Box 767, Chicago, Illinois 60690 (Address of principal executive offices)
(Zip Code) 4 Registrant's telephone number, including area code: 312/294-4321 i
Common Stock outstanding at September 30,1978: 77,499,115 shares i
-1 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sec-tion 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) l has been subject to such filing requirements for the past 90 days.
Yes V No j
i7 8.12 0 4 0 not i
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COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES PART l. FINANCIAL INFORMATION
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INDEX Page Financial Statements:
l Report of Independent Public Accountants 2
I Statements of Consolidated locome for the three months, nine months and twelve months k
ended September 30,1977 and 1978 3
Consolidated Balance Sheets-September 30,1977 and 1978 4-5 Statements of Consolidated Capitalization-September 30,1977 and 1978 6
Statements of Consolidated Retained Earnings for the three months, nine months and twelve i
months ended September 30,1977 and 1978.
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Statements of Consolidated Premium on Common Stock and Other Paid-in Capital for the i
three months, nine months and twelve months ended September 30,1977 and 1978 7
i Statements of Consolidated Changes in Financial Position for the three months, nine months and twelve months ended September 30,1977 and 1978.
8 Notes to Financial Statements.
9-18 Management's Analysis of Statements of consonaateu :~ome.
19-20 i
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Ccmmonwealth Edison Company:
We have examined the consolidated balance sheets and statements of consolidated capitalization of Commonwealth Edison Company (an Illinois corporation) and subsidiary companies as of September 30,-
1977 cod 1978, and the related statements of consolidated income, retained earnings, premium on common stock and other paid-in capital, and changes in financial position for the three-month, nine-month and twelve-month periods then ended. Our examination was made in accordance with generally accepted auditing standards, and accordingly included such tests of the accounting records and such other auditing l
procedures as we considered necessary in the circumstances.
l In our opinion, the financial statements referred to above present fairly the financial position of j
Commonwealth Edison Company and subsidiary companies as of September 30,1977 and 1978, and the s
results of their operations and changes in their financial porition for the three-month, nine-month and
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twelve-month periods then ended, in conformity with generally accepted accounting principles consistently i
applied during the periods.
ARTHUR ANDERSEN & CO.
Chicago, Illinois November 9,1978 I
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l COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES STATEMENTS OF CONSOLIDATED INCOME 1
The following statements of consolidated income for the three months, nine months and twelve rnonths ended September 30,1977 and 1978 reflect the results of past operations and are not intended as any representation as to results of operations for any future period. Future operations will necessarily be affected by various and diverse factors and developments, including changes in electric rates, population, business activity, taxes, environmental control, energy use, fuel supply, and labor, fuel and purchased power costs, and other matters, the nature and effect of which cannot now be determined.
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-Tra.unos or os,n-I EttcTac OPrnATm ArvtNurs (Note 15)
$578.962 $661.373 $1.571,647 $1.845.058 $2.050.048 p.368.428 EucTac OPERAT No EXPENSES ANo Texts:
Fuel (Notes 1 and 19).
$145.086 $175.437 $ 423.900 $ 559.593 $ 552.162 5 728.011 Purchased and 6nterchanged power-net 23.882 19.174 54.067 44.904 62.894 62.183 Operaton 81.417 92.205 235.271 260.465 308.626 333.026 Maintenance.
35.883 38.111 111.780 118.612 140.085 149.677 i
Depreciation (Notes 1 and 19) 53.520 56.917 158.095 170.593 207.483 224.905 i
Taxes (except income)(Note 14) 75.397 86.368 212.102 243.586 269.603 311.899 i
income taxes (Notes 1 and 13)--
j Current -Federal.
27.776 39.349 12.556 54.349 19.336 53.099
- State.
3.105 4.313 5.126 7.621 6.730 8.966
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Deferred-Federah-net.
21.971 20.210 62.274 62.899 89.018 79.575
-Sta'e-net.
1,938 1.770 5.497 5.530 7.860 6.923 i
Investment tax credits deferred--net (Notes 1 and 13).
6.669 8.511 42.205 27.586 52.268 42.651
$476.] $542.365 $1.322.873 $1.655.738 $1.716.065 $2,000,915 Etrcimc OPERATING INCouE.
$102.318 $119.008 $ ?48.774 $ 289.320 $ 333.983 $ 367.513 OTHen INcout ANo DroucTioNS:
Interest on iong-term debt.
$ (52.622) $ (61,498) $ I150.739) $ (175.445) $ (197.319) $ (228.842)
Interest on notes payable.
(2.151)
(4.012)
(6.960)
(11,126)
(7.411)
(14.315)
Allowance for funds used during construction (Note 1)~
Borrowed funds, net of income taxes.
7.506 11.555 21.116 32.084 26.036 40.339 Equity funds.
19.303 29.714 54.300 82.502 69.461 103.729 Current income tax credits applicable to nonoperating activities (Notes 1 and 13).
7.460 15.406 21.778 37.848 28,134 51.972 Miscellaneous-net.
3.098 (4.877)
(535)
(5.532)
(711)
(11.704)
$(17.406) $(13.712) $ (61.040) $ (39.671) $ (81.810) $ (58.821) i Nrt INCOuE
$ 84,912 $105.296 $ 187.734 $ 249.t4? $ 252.173 $ 308.692 PnovisioN ron DwiotND6 oN P ArrtnAro ANo PREFERENCE 2
Stocks 13.495 17,676 39.105 48,788 51.166 63.785 i
NET INCouE ON COMMON SioCK.
$ 71.417 $ 87,620
$148.629 $ 200,861 $ 201.007 $ 244.907 l
AvtRAGE Nuustn or CouuON AND CouuoN EourvALD.T SHAnts OUTsTAPONG (in thousands).
69.983 77.600 66.413 76.564 65.567 75.039 EARNINGS Pfn CouuoN ANo CouuoN EcurvALENT SHARE (Note 1).
$1.02
$1.13
$2.24
$2.62
$3.07
$3.26 1
CASH DNiDENos DECLARED Ptn CouwoN SHARE.
$0 tiO
$060
$1.80
$ 1.80
$2.40
$2.40
( ) Indicates deduction.
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The accompanying Notes to Financial Statements are an integral part of the above statements.
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l COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES r
CONSOLIDATED BALANCE SHEETS
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hl September 30 ASSETS 1977 1978
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-Thousands of Dollars-UTIUTY PLANT (Notes 1,7 and 19):
N Plant and equipment, at original cost (includes construction work j
in progress of $1,806 million and $2,554 million, respectively)
$8,142,299 $9,163,975 j
Less--Accumuhted provision for depreciation 1,747,023 1,847.086
$6,395,276 $7,316,889 Nuclear fuel, including leased fuel, at amortized cost (Note 16),
233,126 322,085
$6,628,402 $7,638,974 Less-Accumulated deferred income taxes (Note 2) 689,808 784,452
$5,938.594 $6,854,522 l
POLLUTION CONTROL CONSTRUCTION FUNDS HELD BY TRUSTEE 53,080 $
15,423 INVESTMENTS:
f Subsidiaries not consolidated (Note 1) 99,016 $ 138,371 1
Other investments, at cost 31,170 56,080 l
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$ 130,186 $ 194,451 CURRENT ASSETS:
Cash (Note 8) 12,374 $
13,000 Temporary cash investments, at cost which approximates market 9,936 9,473 Special deposits 14,527 14,359 Receivables-Customers,
170,647 214,721 Other.
26,419 13,398 Provision for uncollectible accounts (1,500)
(1,500)
Coal and fuel oil, at average cost (Note 19),
151,511 149,678 Materials and supplies, at average cost 55,694 56,783 Prepayments 5.346 7,797
$ 444,954 $ 477,715 5
DEFERRED CHARGES 13,132 $
16,566 ll
$6,579,946 $7.558,677 l
( ) Indicates deduction.
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The accompanying Notes to Financial Statements are an integral part of the above statements, f
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3 COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEETS I
J" September 30 j
LIABILITIES 1977 1978
-Thousands of Dollars-
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CAPITALIZATION (see 8CCompanying statements):
Common stock equity
$2,008,717 $2,276,843 i
Preferred and preference stocks 744,768 884,238 Long-term debt 2,885.219 3,181,51C Nuclear fuellease obligation 6,105 3,760
$5,644,809 $6,346,359 i
j CURRENT LIABILITIES:
Notes payable (Note 8)-
l Commercial paper.
$ 143,437 $ 267,769 i
Bank loans 3,700 3,800 l
Current maturities of long-term debt 83,386 139,572 l
Accounts payable 1,2,002 142,050 Accrued interest 65,124 80,206 l
Accrued taxes 163,375 195,825 Dividends payable 55,455 64,727 Customer deposits 28,585 29,734 Other 29,732 25,414
$ 714,796 $ 949,097 DEFERRED CnEDITS:
Accumulated deferred investment tax credits (Note 1)
$ 197,762 $ l40,442 Other (Note 15) 22,579 22,779
$ 220,341 $ 263,221 i
COMMITMENTS AND CONTINGENT LIABILITIES (Note 17) i
$6,579,946 $7,558,677 i
The accompanying Notes to Financial Statements are an integral part of the above statements.
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COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES E
STATEMENTS OF CONSOLIDATED CAPITALIZATION September 30 1977 1978 COMMON STOCK EQUITY (Notes 3 and 4):
Common stock, $12.50 par value per share--
Authorized 125,000,000 shares-1 Outstanding-69,961,638 shares and 77,499,115 shares, respectively. $ 874,520 $ 968,739 Premium on common stock and other paid-in capital 567,591 679,979 i
Treasury stock, at cost (11)
(9)
Capital stock and warrant expense (11,368)
(12,126) j Retained earnings 577,985 640,260 t
$2,008,717 $2,276,843 PREFERRED AND PREFERENCE STOCKS:
Preference stock, cumulative, without par value (Note 5)-
Authorized 35,000,000 shares-issuable in series-Outstanding-17,249,549 shares and 18,749,549 shares, respectively. $ 652,070 $ 801,564
$1.425 convertible preferred stock, cumulative, without par value (Note 6) i Authorized and outstanding-2,915,061 shares and 2,599,817 shares, i
respectively.
92,698 82,674 i
Prior preferred stock, cumulative, $100 par value per share-f Authorized 850,000 shares---none outstanding,
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$ 744,768 $ 884,238 LONG-TERM DEBT (Notes 7 and 18):
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First mortgage bonds:
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Maturing through 1983-i 3% due June 1,1978 50,000 $
7%% due July 1,1978 33,321 7.55% due April 1,1979.
14,504 14,504 9% due June 15,1979 125,000 125,000 8%% due July 1,1980 49,009 49,009 8%% due April 1,1981.
39,269 39,269 3W% due January 1,1982 4,000 4,000 3%% due July 1,1982 40,000 40,000 8% due October 1,1982 99,695 99,695 9% due August 1,1983 125,000 125,000 Maturing 1984 through 1993-3% to 5.80%.
344,000 344,000 Maturing 1994 through 2003-5%% to 8%
800,000 800,000 Maturing 2004 through 2007-6%% to 9%%
605,000 755,000
$2,328,798 $2,395,477 Sinking fund debentures, due 1996 through 2011-2%% to 9%%
546,127 833,363 Pollution control obligations, due 2006 through 2007-5%% to 6.80%
100,000 100,000 8
Other long-term debt,
2,331 2,266 l
Current maturities of long-term debt included in current liabilities (83,386)
(139,572)
Uname-tized net de,t discount and premium (Note 1).
(8.651)
(10.016)
$2,885,219 $3.181,518 l
NUCLEAR FUEL LEASE OBUGATION (Note 16).
6,105 $
3,760
$5,644,809 $6.346,359 I
( ) Indicates deduction.
The accompanying Notes to Financial Statements are an integral part of the above statements.
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COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES STATEMENTS OF CONSOLIDATED RETAINED EARNINGS
'"L"o.r7 "LDY
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s 1977 1978 1977 1978 1977 1978
-Thousands of Dollars-BALANCE AT BECWNG OF PEROo.
$548.528 $599,691 $551,386 $579,288 $536.716 $577,'.#85 NET INCOME.
84.912 105.296 187.734 249.649 252.173 308,692 j
$633.440 $704.987 $739.120 $828.937 $783.889 $886,677 DrouCT-Cash dividends declared on-I Common stock-$0.60 per share quarterly.
$ 41,976 5 46.499 $121.522 $138,811 $159.230 $181.025
$1.90 preference stock 2.019 2.019 6.056 6.056 8.075 8,074 l
$2.00 preference stock 1.000 1.000 3.000 3.000 4,000 4,000
$1.96 preference stock 980 980 2.940 2.940 3.920 3,920 l
$7,24 preference stock 1,357 1,357 4.072 4.072 5.430 5,430
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$8.40 preference stock 1,575 1.575 4.725 4.725 6,300 6.300 3
$2.875 preference stock 2.156 2,156 6.469 6,469 8,625 8.625 j
$2 375 preference stock 1.782 1,782 5.344 5.344 7,125 7,125 l
$8.38 preference stock 1.571 1.571 3.707 4,714 3.707 6,285 l
$8.20 preference stock 1,537 4.612 6,685 3
$8 40 prefarenca stock. Sarias B.
1,575 3.345 3,345
$8.85 preference stock 1.750 1,750 1,750
$1.425 convertible preferred stock 1,039 926 3.300 2.839 4,492 3,853
$ 55.455 $ 64.727 $161.135 $188.677 $210.904 $246.417 BALANCE A/ END oF PEmoD
$577.985 $640.260 $577,985 $640.260 $577.985 $640.260 i
STATEMENTS OF CONSOLIDATED PREMlUM ON COMMON STOCK AND OTHER PAID-IN CAPITAL
'"L".mE's"o
"'"s*505'E*d
'**"M* U'ao*
s 1977 1978 1977 1978 1977 1978
-Thousands of Donars~
BALANCE AT DEGINNtNG OF PEROD.
$558,464 $675,067 $447.867 $574,033 $441.972 $567.591 Aco-Premium on issuance of common stock.
9.269 5,119 120.276 106.306 126.323 112.869 i
$567,733 $680.186 $568.143 $680.339 $568.295 $680,460
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DEDUCT-Transfer to common stock account the par value of crvnmon stock issued upon exercise of war-j rants 142 207 552 360 704 481 i
BALANCE AT ENo oF PEmoo
$567.591 $679,979 $567.591 $679.979 $567.591 $679.979 i
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The accompanying Notes to Financial Statements are an integral part of the above statements.
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Ise COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES STATEMENTS OF CONSOLIDATED CHANGES IN FINANCIAL POSITION Three Months Ended Nme Months Ended Twelve Months Ended September 30 September 3C September 30 1977 1978_
1977 1978 197F 1978
-Thousands o' oonars-FuNos Pnovioro Br 3
Current operations--
1 Net income
$ 84,912 $105.296 $ 187,734 $ 249.649 $ 252,173 $ 308,692 j
Depreciation and amortization.
65,484 76.947 199,463 221.758 264,977 289,941 Deferred income taxes and investrient tax credits-net.
28.005 32,424 107,469 98,547 146,736 137,340 Equity component of allowance for funds used during construction (19,303)
(29,714)
(54,300)
(82.502)
(69.461)
(103.729)
Other non-cash items-net.
(695)
(1.198)
(1.786)
(2.888)
(2.286)
(4,706)
Funds provided internally.
$158,403 $183.755 $ 438,580 $ 484,564 $ 592,139 $ 627,538 issuance of secunties-Long-term debt.
374,735 298,950 474,430 447,375 Capital stock,
84.392 82.334 342,655 336.132 349,952 345.321 increase in short-term borrowings.
101.180 154,094 14.362 44,234 143.437 124.432
$043.975 $420,133 $1.170,032 $1,103.000 $1,553,95G $1.544.666 i
FUNDS APPUEDTo:
h Construction expenditures
$277,412 $319,888 $ 773.468 $ 895,191 $1,047,294 $1,162,621 l
Nuclear fuel expenditures,
17,450 50.017 58,313 132,370 72.827 169,722 Equity component of allowance for funds used
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during construction.
(19.303) (29,714)
(54.300)
(82,502)
(69,461)
(103,729)
$275.559 $340,191 $ 777,481 $ 945,059 $1,050.660 $1,228,614 Cash dividends declared on capital stock.
55,455 64.727 161.135 188.677 210,904 246,417 Deposits for retirement of first mortgage bonds.
(1,900) (33.321)
(20,000)
Fletirement of first mortgage bonds for cash.
1.900 33.321 181,900 83,321 222,434 83.321 First mortgage bonds exchanged at maturity.
59.466 Deposit by bondholders for purchase of first mortgage bonds 40,229 Increase (Decrease)in pollution control construction funds held by trustee.
(4,167)
(7,291) 28,419 (26,236) 27.093 (37,657)
Investment in subsidiaries not consolidated 3,033 18,500 13.522 25.820 12.857 37.895 increase (Decrease) in working capital (other than short-term borrowings and current maturitk.s of long-term debt),
11.299 6,083 9,135 (51,574)
(49,050)
(20.922)
Other items-net 2,796 (2,027)
(1,260)
(1.187) 5.365 6.998
$343,975 $420,183 $1,170.332 $1.163,880 $1,559,958 $1,544.666 i
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( ) Indicates deduction.
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COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS i
(1) Summary of Significant Accounting Policies:
Principles of Consolidation. The consolidated financial statements include the accounts of all sub-i sidiaries engaged in the electric utility business. All significant intercompany transactions have been eliminated.
Individual financial statements of Commonwealth Edison Company (the " Company") have been l
omitted because it is primarily an operating company and all subsidiaries included in the consolidated financial statements are totally-held subsidiaries. Financial statements of the Company's nonconsolidated subsidiaries have been omitted because, considered in the aggregate, they would not constitute a i
significant subsidiary.
Investments in Subsidiaries not Consolidated. The Company accounts for investments in its subsidi-aries not consolidated under the equity method. At September 30,1977 and 1978, retained eamings includes $16,598,000 and $18,691,000, respectively, of undistributed earnings of subsidiaries not consolidated. The equity in earnings of subsidiaries not consolidated, which is included in miscellaneous income, for the three months ended September 30,1977 and 1978 was $774,000 and $267,000, j
respectively, for the nine months ended September 30,1977 and 1978 was $2,298,000 and $1,229,000, i
respectively and for the fwelve months ended September 30,1977 and 1978 was $2,837,000 and
$2,118,000, respectively. The Company's investment in its uranium subsidiary at September 30,1978 includes about $7,100,000 which represents the unamortized portion of the purchase cost attributable to 7
uranium ore reserves after taking account of the estimated net value of the subsidiary's other assets at the date of Lcquisition. This amount is being amortized on the basis of uranium concentrate produced from l
the reserves.
Depmciation. Depreciation is provided on the straight-line basis by amortizing the cost of depreciable utility plant and equipment over estimated composite service lives. Such provisions for depreciation approximated effective annual rates for the three months ended September 30,1977 and 1978 of 3.59%
and 3.63%, respectively, for the nine months ended September 30,1977 and 1978 of 3.60% and 3.63%,
respectively and for the twelve months ended September 30,1977 and 1978 of 3.59% and 3.62%, respec-tively, of the average cost of depreciable utility plant and equipment. While the eventual cost of retiring a nuclear genera 9ng unit is uncertain at the present time, these composite depreciation rates include sig-nificant allowances for t'oth interim chemical cleaning and end-of-life decontamination and retirement.
Maintenance, repairs and replacement of minor items of property are charged to maintenance ex-pense as incurred. When property which represents a retirement unit is replaced, removed or abandoned, the original cost of such property, together with removal costs less salvage, is charged to accumulated i
provision for depreciation.
l Amortization of Nuclear Fuel. The cost of nuclear fuel, including spent fuel disposal cost, is amortized to fuel expense based on the quantity of heat produced for the generation of electric energy. The disposal cost outlook is reviewed periodically and the estimate is revised, as appropriate, on a prospective basis.
si The Company's objective is to provide for all disposal costs by the time final disposition is made of all nuclear fuel currently on hand, including spent fuel. A provision for costs associated with the disposal of 4
spent fuel has been included in nuclear fuel expense. Provisions for amortization of nuclear fuel for the three months ended September 30,1977 and 1978 were $11,964,000 and $20,030,000, respectively, for the nine months ended September 30,1977 and 1978 were $41,368,000 and $51,165,000, respectively
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and for tne twelve months ended September 30,1977 and 1978 were $57,494,000 and $65,036,000, respectively.
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COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES l
NOTES TO FINANCIAL STATEMENTS-Continued l
Income Taxes. Provisions for deferred income taxes primarily reflect the use of liberalized depreciation methods, the Class Life Asset Depreciation Range System, including the repair allowance, and accelerated amortization for income tax purposes; gain on reacquired debentures credited to other income but applied as a reduction of the cost of depreciable property for income tax purposes; and pensions and general taxes capitalized for book purposes but deducted currently for income tax l
purposes. As income taxes become payable because of the reversal of such timing ditferences, the related accumulated deferred income taxes are credited to income.
f Investment tax credits utilized, other than credits resulting from contributions to the Employe Stock Ownership Plan, are deferred and amortized through credits to income over the lives of related property.
Income tax credits resulting from interest charges applicable to nonoperating activities, principally 5
construction, are classified as other income.
Allowance for Funds Used During Construction (AFUDC). In accordance with uniform systems of l
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accounts prescribed by r"Oulntory authorities, the Company capita!izes AFUDC which represents the estimated net cost of funds used to finance the construction program. Annual rates of 6.6% and 7.0%,
compounded semi-annually, were used in 1977 and 1978, respectively, to determine the amounts of AFUDC. AFUDC is a non-cash item and does not contribute to the current cash flow of the Company.
Unamortized Debt Discount, Premium and Expense. Debt discount, premium and expense on out-j standing long-term debt are beir.g amortized over the lives of the respective issues.
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Gain on Reacquired Debentures. Gains resulting from reacquisition by the Company of its debentures to satisfy sinking fund requirements are recognized currently in other income, net of the related income tax effect. This method is consistent with the treatment applied for ratemaking purposes. The gain on reacquired debentures, net of income taxes, for the three months ended September 30,1977 and 1978 was $78,000 and $622,000, respectively, for the nine rnonths ended September 30,1977 and 1978 was
$141,000 and $1,336,000, respectively and for the twelve months ended September 30,1977 and 1978 was $232,000 and $1,963,000, respectively.
Earnings Per Common and Common Equivalent Share. Earnings per share were computed using the weighted average number of shares of common stock and common stock equivalents outstanding.
Additional shares of common stock which would be issued if all outstanding common stock purchase war-rants were converted into common stock have been considered common stock equ;valents.
f (2) Accumulated Deferred Income Taxes. Accumulated deferred income taxes have been deducted from utility plant investment because a substantial portion thereof, like the depreciation reserve, is j
deducted from plant investment in arriving at the rate base used in ratemaking proceedings.
(3) Common Stock. At September 30,1978, shares oi commcn stock were reserved for the following f
purposes:
Conversion of $ 1.425 convertible preferred stock 1,923.864 Exe:cise of common stock purchase warrants 645.263 AutomatK: Dividend Reinvestment and Stock Purchase Plan 4.376.549
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Employe Stock Purchase P:an.
1.883,849 Employe Stock Ownership Plan.
165.074 8.994.599 t
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COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES 1
f NOTES TO FINANCIAL STATEMENTS-Continued During the three months, nine months and twelve months ended September 30,1977 and 1978, shares of common stock, $12,50 par value per share, were issued for the following purposes:
h s.N N ao "s*5Nao s [NIo l
1977 1978 1977 1978 1977 1978 Public offerings.
6,000,000 6,000,000 6,000,000 6,000.000 Conversion of $1.425 convertible preferred stock 110,983 32,984 305.952 180.940 365,426 231,341 Conversion of warrants,
11.234 16,542 43,764 28,731 55,770 38.263 Purchased with warrants.
133 31 380 68 534 233 Automatic Dividend Peinvestment and Stock j
Purchase Plan.
160.407 286,696 479.468 790.916 618.068 1,003,570 g
Employe Stock Purchase Plan 120,111 138,504 234.349 264,070 Employe Stock Ownership Plan 162,528 162,528 162.528 j
445.285 336.253 7,112,203 7,139.159 7,436.675 7.537.477 At September 30,1978, the Company held in its treasury 314 shares of its common stock which were i
reacquired from participants who withdrew from the Automatic Dividend Reinvestment and Stock i
Purchase Plan, (4) Common Stock Purchase Warrants. At September 30, 1978, 645,263 common stock purchase warrants were outstanding. Each warrant entitles the holder to purchase one share of common stock for
$30 or to convert such warrant into common stock at a conversion rate of one share of common stock for l
three warrants. The option to purchase shares of common stock will expire on April 30,1981. Thereafter, any unexercised warrants will continue to be convertible into common stock, Warrants exercised both to i
purchase and for conversion into common stock for the three months ended September 30,1977 and l
1978 were 34,052 and 49,724, respectively, for the nine months ended September 30,1977 and 1978 were 132,215 and 86,582, respectively and for the twelve months ended September 30,1977 and 1978 were 168,548 and 115,476, respectively.
(5) Preference Stock. The outstanding series of preference stock, without par value, at September 30, 1978 are summarized as follows:
O outsiUno s.Y.dT.5 Yu
[vio$ w envi sane.
%. a 2::",t'
$1.90 1971 4.249,549
$106,239
$26 00 prior to May 1,1981; and $25.25 thereafter
$2.00 1971 2.000,000 51,560
$26.81 prior to December 1,1981; and $26.04 thereafter
$ 1.96 1972 2,000,000 52,440
$27.65 prior to December 1,1982; and $27.11 thereafter
$7.24 1973 750,000 74,340
$103 prior to March 1,1983, and $101 thereafter
$8.40 1974 750,000 74,175 Non-callable prior to February 1,1979; $103 from February 1, 1979 through January 31,1984; and $101 thereafter
$2.875 1974 3,000.000 72,300 Non-callable prior to November 1,1984 except for sinking fund;
$26 50 from November 1,1984 through October 31,1989; and 3,
$25.25 thereafter
$2.375 1975 3,000,000 72.450 Non-caflable pnor to November 1,1980; $26.50 from November 1, 1980 through October 31,1985; $25.75 from November 1,1985 j
through October 31,1990; and $25.25 thereafter
$8.38 1977 730,000 73.566 Non-caHable prior to April 1,1982; $102.15 from April 1,1982 y
through March 31,1987; and $100.16 thereafter i
$8.20 1977 750,000 75.000 Non-callable prior to November 1,1987, except for sinking fund;
$105 from November 1,1987 through October 31.1992; $103 i
from November 1,1992 through October 31,1997, and $101 thereafter
$8. 40, 1978 750,000 74,494 Non-callable prior to May 1,1983- $103 from May 1,1983 through Seres B April 30,1988, and $101 thereafter 1
$8.85 1978 750.000 75,000 Non-callable prior to August 1,1988, except for sinking fund; $ 105
{
from August 1,1988 through July 31,1993. $103 from August 1, i
1993 through July 31,1998; and $101 thereafter 18,749.549
$801,564 i
q 11 i
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I COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES h
NOTES TO FINANCIAL STATEMENTS-Continued The mandatory sinking fund requirements of outstanding preference stock are summarized as follows:
sense Annues sinsiing Fund Requirement and Price Per She,e(plus accrued and unde 6d( Mdends. N any)
$2.875,
150,000 shares on November 1 of each year, beginning in 1979, at $25
$2.375,
150.000 shares on November 1 of each year, beginning in 1980, at $25 i
$8.20.
35,715 shares on November 1 of each year, beginning in 1982, at $ 100
$8 40 Series D,
30.000 shares on May 1 of each year, beginning in 1983. at $100
{
$8.85,
37,500 shares on August 1 of each year, beginning in 1984, at $100 Annual sinking fund requirements will aggregate $3,750,000 in 1979, $7.500,000 in 1980, $7,500,000 in 1981, $11,071,500 in 1982 and $14,071,500 in 1983.
The Company has non-cumulative options to increase the annual sinking fund payments to retire an f
additional 150,000 shares of both the $2.875 series and the $2.375 series on November 1 of each year, beginning in 1979 and 1980, respectively, and an additional 30,000 shares of the $8.40 Series B on May 1 of each year, beginning in 1983.
The involuntary liquidation prices per share of the outstanding preference stock are $25.00 for the
$1.90, $2.00 and $1.96 series; $99.12 for the $7.24 series; $98.90 for the $8.40 series: $24.10 for the
$2.875 series: $24.15 for the $2.375 series; $98.09 for the $8.38 series; $100.00 for the $8.20 series; a
$99.326 for tho $8.40 Series B; and $100.00 for the $8.85 series; plus accrued and unpaid dividends, if i
any.
i, (6) $1.425 Convertible Preferred Stock. The shares of the convertible preferred stock are convertible at the option of the holders thereof, at any time, into common stock currently at the rate of 74/100ths of a j
share of common stock for each share of convertible preferred stock. The convertible preferred stock may be redeemed at $42 per share, plus accrued and unpaid dividends, if any. The involuntary liquidation price of the convertible preferred stock is $31.80 per share, plus accrued and unpaid dividends, if any. Converti-ble preferred stock converted into common stock for the three months ended September 30,1' 77 and 1978 was 154,247 shares and 44,591 shares, respectively, for the nine months ended September 30,1977 and 1978 was 428,536 shares and 245,208 shares, respectively ar'd for the twelve months ended September 30,1977 and 1978 was 513,519 shares and 315,244 shares, respectively.
(7) Long-Term Debt. Sinking fund requirements and scheduled maturities through 1L 3 for long-term debt outstanding at September 30, 1978, after deducting $26,237,000 of debentures reacquired for satisfaction of future sinking fund requirements and deducting annual sinking fund requirements for prior i
lien bonds to be satisfied by available property additions, are summarized as follows:
D.lU.
- f.M v.e, 1979.
68.000 $ 139.504.000 1980.
$ 1.897,000 $ 49,009.000
- 1981,
$ 3A13.000 $ 39.269,000 1982.
$27,613,000 $143.695,000 1983.
$28.279.000 $ 125.000,000 I
Long-term debt maturing within one year has been included in current liabilities.
The Company's Mortgage dated July 1,1923, as amended and supplemented, securing the first mort-gage bonds issued by the Company, constitutes a direct first mortgage lien on substantially all property and franchises, other than expressly excepted property, ownew by the Company. The properties and 12
i i
i COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES
~
NOTES TO FINANCIAL STATEMENTS-Continued franchises acquired by the Company in the merger with Central lilinois Electric and Gas Co. and now j
owned by the Company are also subject to the prior lien of the Central indenture assumed by the l
Company.
)
(8) Notes Payable. At September 30,1978, the Company had outstanding promissory notes payable as l
follows: commercial paper of $267,769,000 due on var:ous dates through December 18,1978, at annual discount rates averaging 8.35%, and bank loans of $3,800,000, due February 4,1979 and July 5,1979, at l
prevailing prime interest rates averaging 9.75%. The average amounts of outstanding promissory notes payable and the weighted average annual discount rates thereon for the three months ended September i
30,1978 were $201,284,000 and 7.91%, respectively, for the nine months ended September 30,1978
{
were $205,25*,000 and 7.25%, respectively and for the twelve months ended September 30,1978 were i
$202,736,000 and 7.06%, respectively. The maximum amount of promissory notes payable outstanding at any month end during the twelvc raonths ended September 30,1978 was $308,830,000.
The Company has unused bank lines of credit that enable it to borrow up to $242,000,000 at prevailing prime interest rates. Short-term borrowings may be made under these lines of credit on j
unsecured notes of the Company. Substantially all of the current lines of credit expire September 30, i
1979.
The Company maintains cash balances on deposit with banks to provide operating funds, to assure g
availability of its linen of credit and to compensate the banks for other services they perform for the Com-
[
pany. These bank balances for the Company and consolidated subsidiaries are maintained at an average i
level of approximately $13.500,000 without formal commitments to do so. As demand deposits, these balances may be legally withdrawn at any time.
(9) Service Annuity Systems. The Company and Commonwealth Edison Company of Indiana, Inc., a consolidated subsidiary, have non-contributory service annuity systems which cover all regular employes.
Provisions for contributions to the related trust funds for the three months ended September 30,1977 and 1978 were $12,836,000 and $12,192,000, respectively, for the nine months ended September 30,1977 and 1978 were $35,274,000 and $36,452,000, respectively and for the twelve months ended September 30,1977 and 1978 were $46,335,000 and $45,961,000, respectively, and were equivalent to actuarial normal costs based on the aggregate cost method. Parts of the provisions are charged to construction costs.
At September 30,1978, the current value of the trust funds approximated the estimated actuarially 3
computed value of vested benefits at that date, which estimate was based upon the latest actuarial valuation as of January 1,1978.
i i
(10) Employe Stock Purchase Plan. Under the Company's Employe Stock Purchase Plan, all regular full-time employes, including officers but not directors who are not officers or employes, may accumulate up to i
10% of their regular pay and on designated dates twice each year, in April and October, use such accumulated savings to purchase, at their option, common stock of the Company at 90% of the closing j
market price on such dates, but at not less than par value.
4 (11) Employe Stock Ownership Plan. The Company has established an Employe Stock Ownership Plan, the funding of which is limited to contributions from the Company equal to additionalinvestment tax credits utilized under the Tax Reduction Act of 1975.
13 i
i
?
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS-Continued (12) Deferred Compensation Plan. Under the Company's Deferred Compensation Plan compensation units may be awarded to key executive and managerial employes. Each compensation unit entitles the holder to payments equal to and made on the payment dates of the cash dividends he would have received if on the day of the award one share of the Company's common stock had been issued to him. Subject to certain limitations after termination of employment, such payments continue for the life of the holder and of the surviving spouse married to the holder when his period of service terminated. Charges to expense, including provisions for payment after termination of employment for the three months ended September 30,1977 and 1978 were $577,000 and $601,000, respectively, for the nine months ended September 30, 1977 and 1978 were $1,643,000 and $1.752,000, respectively and for the twelve months ended September 30,1977 and 1978 were $2,178,000 and $2,328.000, respectively.
(13) income Tax Provisions. Provisions for current and deferred state and federal income taxes and investment tax credits deferred resulted in effective tax ra'es for the three months ended September 30, 1977 and 1978 of 41.2% and 40.6%, respectively, for the nine months ended September 30,1977 and 1C 78 of 40.2% and 38.3%, respectively and for the twelve months ended September 30,1977 and 1978 of 4J.8% and 37.9%, respectively. The principal differences between these rates and the federal statutory rate of 48.0% were (i) the effect of state income taxes which increases the composite statutory rate to 50.08% and (ii) the exclusion from taxable income of the equity component of allowance for funds used during construction, the federalincome tax effect of which, stated as a percentage of pre-tax income, for the three months ended September 30,1977 and 1978, was 6.4% and 8.0%, respectively, for the nine months ended September 30,1977 and 1978 was 8.3% and 9.8%, respectively and for the twelve months ended September 30,1977 and 1978 was 7.8% and 10.0%, re pectively.
A review by the Internal Revenue Service of the Company's income tax returns for the years 1972 through 1975 is in progress. Although no report has yet been issued, the Company was advised in March, 1978 that the Service may propose an adjustment increasing the Company's income tax liabilities for the years 1972 and 1973. The Company intends to contest such proposed adjustment and, in the opinion of the Company and its counsel, the Company should prevail and no material effect on the financial statements is anticipated.
At September 30,1978, unused investment tax credits were approximately $85,000,000.
(14) Supplementary Income Statement Information. Provisions for taxes, except income taxes, for the three months, nine months and twelve months ended September 30,1977 and 1978 were as follows:
I. N m
.mtNm
$o s
sep 1977 1978 1977 1978 1977 1978
-Nusands ce comer -
Real estate, personal property and capital stock,
$26.893 $32.629 $ 79,890 $ 92.877 $ 99.326 $120,306 tlhnois public utility revenue 26.875 31.039 72.940 86,061 95.547 110.206 Municipal compensation.
7.944 8,950 21,776 24,972 28.424 32,156 Municipal utlhty gross receipts.
10.883 12.746 29,653 34.715 38,757 44,342 Other 2,802 1.004 7.843 4.961 7.549 4,889
$75.397 $86.368 $212.102 $243.586 $269.603 $311,899 (15) Revenues Subject to Possible Refund. Since October 31, 1974, the Compary has billed
$18,461,000 to resale customers subject to possible refund pending a final decision on revised wholesale 14
_,__-...-..m-
i i
w i
i i
I COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS-Continued
~
rate schedules filed with Federal Energy Regulatory Commission (the " Commission"). At September 30, 1978, $8,434,000 of such billings was included in Other Deferred Credits; billings of $10,027,000 l
subsequent to October 1,1976 have been included in operating revenues. On May 22,1978, En initial j
deci, ion was rendered by an administrative law judge of the Commission and, or the basis of that opinion j
any refunds required would be nominal. The 'nitial cecision is subject to review by the Commission. When j
a final decision is issued, any amounts included in Other Deferred Credits not refunded will be credited to i
income.
i (16) Lease Obligations. The Company has capitalizeo the nuclear fuelleased for Dresden Unit 3 and i
recorded the related lease obligation. Semi-annual rental payments are sufficient to pay for the cost of j
heat produced during each period plus lessor's interest expense, and provisions therefor are being charged to fuel expense.
l In addition, the Company has leased certain other property which would meet the criteria requiring capitalization under an accounting standard issued by the Financial Accounting Standards Board.
However, since they have been treated as operating leases for ratemaking purposes, they have been i
accounted for as such. If such leases had been capitalized, related assets and liabilities of approximately
$29,745,000 and $44,030,000 would have been recorded at September 30,1977 and 1978, respectively.
l The effect on expenses for the three months, nine months and twelve months ended September 30,1977 and 1978, would not have been material.
Future minimum rental payments at September 30,1978 for such leases, including the capitalized nuclear fuel lease and the other capitalizable leam referred to above, are estimated to aggregate i
$65,384,000, including $2,034,000 in 1978, $10.371,000 in 1979, $10,258,000 in 1980, $8,137.000 in 1981, $8,137,000 in 1982 and $8,137,000 in 1983. The estimated interest component of such rental payments aggregates $15,601,000.
(17) Commitments and Contingent Liabilities. Purchase commitments, principally related to construction and nuclear fuel, approximated $1,961,000,000 at September 30,1978.
The Company is a member of Nuclear Mutual Limited, established to provide insurance coverage against property damage to members' nuclear generating facilities. The Company would be subject to a maximum assessment of approximately $61,000,000 in the event of losses.
In addition, effective August 1,1977, the Nuclear Regulatory Commission's indemnity for public liability coverage under the Price-Anderson Act began to be supported by a mandatory industry-wide i
program under which owners of nuclear generating facilities could be assessed in the event of nuclear incidents. Based on the number of nuclear reactors presently in service, the Company would be subject to a max; um assessment of $32,500,000 in the event of an incident, limited to a maximum of $65,000,000 in any calendar year. For each additional nuclear reactor placed in service, such maximum assessments will increase $5,000,000 and $10,000,000, respectively.
Reference is made to "Part II, item 1. Legal Proceedings" for information concerning certain j
administrative and legal proceedings which may or may not require increases in the Company's future construction expenditures and operating expenses.
i (18) Subsequent Event. On October 26,1978, the Company issued $250,000,000 principal amount of i
First Mortgage 9%% Bonds, Series 38, due October 15,2008. Proceeds from the sale amounted to
$246.425,000.
15
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS-Continued (19) Replacement Cost Information as of December 31,1977 (Unaudited). The Company's estimates of replacement costs and related data are set forth below. These estimates do not consider all of tha effec's of inflation on the Company's operations and necessarily require substantial subjective judgments.
Moreover, replacemcat costs are not recognized for income tax and ratemaking purposes. Consequently, it would be inappropriate to use these data to adjust reported earnings because doing so would result in a serioue mismatch between revenues and expenses. Other limitations are set forth in notes a through g below.
co.E. w '
(H t co.1 o.3. 0 m
-Mnone of Doliers-UTiurY PLANT ANO FUEL lNVENTORIES AT ofCEMBE R 31.1977:
Utihty plant and equipment (Note a).
$19.340
$8.400 Less-Accumulated provision for depreciation (Note b).
7.990 1.792
$11.350
$6.608 Nuclear fu6 (including leased fuel) at amortized cost (Note c):
Fuelin reactors.
340 107 Fuel stocks 470 145
$ 12.160
$6.860 Coal and fsel oil inventer:es PJate d) 80
$ 142 Drmfc1AfloN AND Fet EXPENSE foR THE YEAn 1976:
Dep eciat:on ee.,oer,se (Moie e).
$ 465
$ 197 fuel expense (N >te f):
Amertizatiol and 'eere charges for nuclear fuel in reactors
$ 185 5 51 Coal and fuel oil bumed 330 438
$ 515
$ 489 Df PRECIAfloN AND FUEL ExetNSE FOR 1HE YE AR 1977:
Depreciatio i expena (Note e).
$ 540
$ 212 fuel expense (Note f):
Amortization and lease charges for nuclear fuel in reactors 5 220
$ 59 Coal sad fuel oil burned 335 533
$ 555
$ 592 Notes to Replacement Cost Information
- a. Plant and equipment. Construction work in progress, land and intangible plant are included in the replacement cost data at their original cost. The replacement costs of other plant and equipment represent estimated costs which would be incurred if the plant and equip.nent facilities were replaced at December 31,1977 price levels, assuming no cost escalation beyond that date.
Actual replacement of plant and equipment will take place ov;r many years, probably in form and manner different from those assumed in developing these estimates. For these and other reasons, the replacement ccst information presented is not it'dicative of the current value of existing plant and equipment nor of the Company's future capital requirements.
The estimated replacement cost of the 16,909 megawatts of generating facilities at December 31, 1977 reflects assumed replacement at capacity levels of 50% nuc' ear,40% coal-fired,10% oil-fired peaking and no oil-fired steam capacity. Each type of such replacement capacity was priced at the estimated average cost per kilowatt of building such capacity, reflecting existing environmental and safety requirements, at Cecember 31,1977.
No changes in mix were assumed for transmission, distribution and general plant, for whicti replacement costs were estimated by using the July 1,1977 Handy-Whitman Index of Public Utility Construction Costs applied by plant accounts and vintage years, with adjustments to December 31,1977 price levels.
16 4.
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS-Continued b Accumulated depreciation. The accumulated provision for depreciation on a replacement cost basis was estimated sefarately for each of five major classes of plant and equipment-steam-electric generation (nuclear and coal), peaking 9eneration (oil), transmission, distribution ano general plant. The method used was to multiply the replacement cost of facilities in each class by a percentage representing the estimated expired life of existing facilities in that class at l'ecember 31,1977. For each of the two classes of generating plant, the estimated expired life was based upon a weighted average for all units in the class, computed by weighting the estimated expired life of each unit according to its net capability. For each of the three remaining plant classes, transmission, distribution and general plant, the estimated expired life was based on the weighted average for all facilities in the class computed by weighting the estimated expired life of each group of facilities according to its replacement cost.
- c. Nuclear fuel. The replacement cost of in-core reactor fuel represents the year-end value of the estimated energy content of such fuel which would be required by the nuclear capacity ccatemplated under the replacement cost assumptions (see note a). The method used was (i) to determine the initial energy content (expressed in usable Btu's) of all in-core assemblies which would be required to fuel the assumed nuclear capacity, assuming the same average mixture of initial and re-load fuel as exisMd in reactors at December 31,1977, (ii) to reduce this initial quantity of Btu's by the average percentage 6 depletion recorded for all existing nuclear fuel cores at year-end (calculated by dividing the accumulated per books amortization of nuclear fuel in reactors by the original cost thereof), and (iii) to price the remaining Blu's of usable energy at their estimated year-end replacement cost, after adjustment for waste disposal allowances. The replacement cost of nuclear fuel stocks not yet placed in reactors, including uranium concentrate, uranium in various stages of refinement, conversion, enrichment and fuel fabrication, and completed fuel assemblies, was based on year-end price levels.
- d. Coal and fuel oilinventories. Actual inventories of coal and fuel oil at December 31,1977 were assumed to be reduced in proportion to the respective reductions in coal and fuel oil usage referred to in note f.
The replacement costs of these inventories were then determined by pricing such reduced inventories at their estimated replacement costs at year-end.
- c. Depreciation expense. Depreciation expense based on replacement cost was determined using the rates and methods used for computing book depreciation based on original cost.
- f. Fuelexpense. To determine 1976 and 1977 fuel expense on a replacement cost basis, actual fuel usage was adjusted to reflect the assumed proportions of nuclear, coal and oil-fired generating facilities referred to in note a. As a result, the quantity of nuclear fuel usage was increased while coal and fuel oil usage was reduced. Actual 1976 and 1977 operating rates for nuclear and oil-fired peaking capacity were used in estimating the generation of these two categories under the rep!acement cost assumptions. The remaining generation was assumed to result from coal-fired capacity. No change was made in purchased power.
Nuclear fuel amortization was calculated by pricing the estimated increased nuclear fuel usage (in Btu's) at the estimated December 31,1976 and 1977 replacement prices (assuming no leasing) plus an allowance for disposal costs Coal and fuel oil expenses were calculated by pricing the reduced 1976 and 1977 usage of each such fuel at its average year-end replacement cost and adding related handling expenses. This procedure was followed because replacement prices of nuclear, coal and oil fuel at each year-end were assumed to be representative of such prices throughout the year
- g. General. If replacement costs were fully recognized for ratemaking and income tax purposes, it would be appropriate to record them on the books, at least with respect to the proportion of plant 17
COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES NOTES TO FINANCIAL STATEMENTS-Concluded represented by stockholders' equity, in order to partially reflect the effects of inflation. Failing that, however, a modest first step might be to restate depreciation expense to reflect the higher construction costs of recently completed plant. A suggested procedure would be to depreciate the same proportion of plant facilities each year as at present, but to price the depreciation provision (expressed in units of physical plant) at the unit cost of the facilities most recently placed in service and not theretofore depreciated. Under such a "last-in, first-out"(LIFO) approach, depreciation charges would be significantly increased, but not as much as under full replacement cost accounting.
While not departing from the use of historical costs, the LIFO depreciation approach would tend to reflect higher construction costs already sustained and technological changes already embodied in completed plant. LIFO depreciation would have increased the Company's 1977 depreciation expense to
$390 million, about midway between $212 million recorded per books and the $540 million replacement cost de,oreciation shown above. However, even the LIFO increast, would be inappropriate unless allowed for both income tax and ratemaking purposes.
18
4 i
1 f
MANAGEMENT'S ANALYSIS OF STATEMENTS OF CONSOLIDATED INCOME The following factors had a maior impact on changes in the results of the Company's operations i
during the periods indicated:
Quarter ended September 30,1978 compared to Quarter ended September 30,1977 Electr!c Operating Revenues. Operating revenues increased by $82,411,000, of which approximate-i ly 56% resulted frcm a rato increase effective October 14, 1977, 35 % from increased fuel adjustment charges because of higher fossil fuel costs and 9% from increased kilowatthour sales and other items.
Electric Operating Expenses and Taxes. Fuel expense increased due to an 8.5% increase in I
Ceneration and higher fuel prices, primarily coal.
Purchased and interchanged power decreased due to greater availability of large generating units.
Operation expense increased as a result of additional plant and equipment in service, increased pay-i roll costs and other employe benefits due to annual wage increases and more personnel on the payroll and j
annual escalation in the cost of materials and services from outside contractors.
Taxes other than income taxes increased principally due to higher provisions for property taxes primarily because of additions to plant and equipment and increased revenue taxes as a result of growth in i
revenues.
}
Interest on Debt. Interest on debt increased because of greater amounts of debt outstanding and higher ir terest rates, as follows:
1977 1978 Long-term debt-
]
Average amount outstancing (in thousands)
$2.969.378 $3.331.856 Average interest rate,
7.03 %
7.37%
l Notes payable-Average amount outstanding (in thousands)
$ 147.856 $ 201.284 Average interest rate,
5.77 %
7.91%
OtherItems. The amounts of allowance for funds used during construction primarily reflect increases in the 'evels of investment in construction work in progress and an increase in the annual rate from 6.6% in 1977 to 7.0% in 1978.
Quarter ended September 30,1978 compared to Quarter ended June 30,1978 Electr/c Operat/ng Revenues. Operating revenues increased by $92,267,000 primar, from a 17.3%
increase in kilowatthour sales to ultimate consumers.
Electric Operat/ng Expenses and Taxes. Purchased and interchanged power increased as a result of increased kilowatthours purchased under a seasonal summer agreement.
=
Taxes other than income taxes increased principally due to higher provisions for property taxes primarily because of additions to plant and equipment and increased revenue taxes as a result of growth in revenues.
Interest on Debt. Interest on debt increased because of greater amounts of debt outstanding and i
higher interest rates, as follows:
June 30 September 30 Long-term debt-Average amount outstanding (in thousands)
$3.238.833 $3.331.856 Average interest rate,
7.22%
7.32 %
j Notes paysble-Average amount outstanding (in thousands)
$ 192.848 $ 201.284 Average interest rate,
7.01%
7.91%
Otheritems. The amounts of allowance for funds used during construction primarily reflect increases in the levels of investment in construction work in progress.
19 I
Nine months ended September 30,1978 compared to nine months ended September 30,1977 Electric Operating Revenues Operating revenues increased by $273,411,000, of which approxi-mately 43% resulted from a rate increase effective October 14, 1977, 44 % from increased fuel adjust-ment charges because of higher fossil fuelcosts and 13% from increased kilowatthour sales and other items.
Electric Operatlng Expenses and Taxes. Fuel expense increased due to 6.4% higher generation and increased fuel prices, primarily higher priced fossil fuels.
Purchased and interchanged power decreased due to fewer kilowatthours purchased and a net in-crease in interchange energy supplied to other utilities.
Operation expense increased as a result of additional plant rind equipment in service, increased payroll costs and other employe benefits due to annual wage increases and more personnel on the payroll and annual escalation in the cost of material and services from outside contractors.
Taxes ctbar than income taxes increased principally due to higher provisions for property taxes primarily because of additions to plant and equipment and increased revenue taxes as a result of growth in revenues.
Interest on Debt. Interest on debt increased because of greater amounts of debt outstanding and higher interest rates, as follows:
1977 1978 Long-term debt-Average amount outstanding (in thousands)
$2.8 75,801 $3,229.504 Average interest rate,
7 01%
7.26%
Notes payable-Average amount outstanding On thousands)
$ 180,024 $ 205.254 Average interest rate.
5 17%
7.25%
Other items. The amounts of allowance for funds used during construction primarily reflect increases in the levels of investment in construction work in progress and an increase in the annual rate from 6.6% in 1977 to 7.0% in 1978.
Twelve months ended September 30,1978 compared to twelve months ended September 30,1977 Electric Operating Revenues. Operating revenues increased by $318,380,000, of which approxi-mately 44% resulted from a rate increase effective October 14,1977, 44% from increased fuel adjustment charges because of higher fossil fuel costs and 12% from increased kilowatthour sales and other items.
Electric Operating Expenses and Taxes. Fuel expense inc: ' sed due to 4.8% higher generation and generally higher fuel prices, primarily higher priced fossil fuels.
Taxes other than income taxes increased principally due to higher provisions for property taxes primarily because of additions to plant and equipment and increased revenue taxes as a result of growth in revenues.
Internst on Debt. Interest on debt increased because of greater amounts of debt outstanding and higher interest rates, as follows:
1977 1978 Long-term debt-Average amount outstanding (in thousands)
$2,852.948 $3.168,767 Average interest rate.
6.92 %
7.22%
Notes payable-Average amount outstanding (in thousands)
$ 143.350 $ 202,736 Average interest rate.
5.17%
7.06 %
Otheritems. The amounts of allowance for funds used during construction primarily ref!ect increases in the levels of investment in construction work in progress and an increase in the annual rate from 6.6% in 1977 to 7.0% in 1978.
20
PART 11. OTHER INFORMATION k
Item 1. Legal Proceedings.
l Bectric Rate Increases. On January 20,1978. Commonwealth Edison Company (the " Company")
filed with the lilinois Commerce Commission a proposal for a 5.6% increase in electric rates, which would add about $125 million to annual revenues on the basis of sales for the year 1977. Certain governmental bodies and others intervened in the proceeding. Hearings in the case have been concluded. There is no assurance that the increase in rates applied for will be granted. The lilinois Public Utilities Act provides that the Commission issue a final decision by December 19,1978.
i On October 12,1977, the Illinois Commerce Commission authorized increased electric rates for the Company, effective for service rendered on and after October 14, 1977, which increased operating j
revenues by about 7.6% on the basis of sales for the year 1977. Petitions for rehearing filed by certain i
intervenors were denied, and a petition for rehearing filed by the Company wac partly denied. Such intervenors and the Company have appealed the denials to the Circuit Court of Cook County, Illinois. On j
the Company's petition for rehearing, the Commission entered an order on January 18,1978 amending the
{.
rate order as to certain deferred tax matters.
On April 10, 1974, the Illinois Commerce Commission ordered an inquiry into the Company's
=
compliance with environmental conditions of the Commission's rate order of July 10, 1970. Public hearings have been held to receive data as to such compliance by the Company. In the 1970 order, the Comm:ssion prescribed a program of environmental measures and made 50% of the rate increase granted i
by that order conditional upon the Company's carrying out such measures and such other measures as may be required under any future orde s issued by the Commission as a result of its investigation referred to under " Air Quality Regulation." Rate increases effective December 13,1971 and February 16, 1973, authorized by the Commission's rate crder dated December 10,1971, are also subject to the condition contained in the 1970 order. Subsequent rate orders have not been so conditioned. The program contained in the Commission's 1970 order is being implemented and is provided for in the Company's construction and operating budgets, and the Company, in its opinion, is complying with the requirements of the order.
The Company's rate schedules include fuel adjustment riders through which fossil fuel price changes are offset by later revenue changes. Under current riders, fossil fuel costs per therm are averaged over a three-month period beginning four months prior to the billing month.
Litigation. A complaint was filed on March 2,1972 in the United States District Court for the Southern j
District of Illinois, Southern Division, by a holder of the Company's 9.44% Cumulative Prior Preferred i
Stock. The action was brought on behalf of such holder and on behalf of all of the other holders and owners of the Company's 9.44% Cumulative Prior Preferred Stock. The complaint alleged that as a consequence of the redemption of such stock the Prospectus of the Company dated June 24,1970 used in connection with the issue and sale of such stock became and would become false, misleading and i
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manipulative, and the redemption would be a manipulative device, in violation of the Securities Exchange i
Act of 1934 Rule 10(b)-5 thereunder and the Securities Act of 1933 and that such redemption would be a j
breach of contract. The plaintiff asked damagesin the amount of $300,000 for itself and damages for each j
of the other holders in an amount equal to the loss sustained by such holder. On May 2,1972, the Court entered an order providing that the action be maintained as a class action on behalf of a class comprised of the plaintiff and all o'her holders of record of such stock at and after January 4,1972. Notice of this order 21 1
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was mailed to the members of the class on May 12,1972. On Aujust 28,1972, the Court entered an order
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allowing a party to intervene and designating chief counsel to represent the interests of ail plaintiffs in the i
proceeding. On December 19, 1972, the plaintiff filed an amended complaint which made certain additional allegations of fraud and sought damages beyond the alleged actuallosses of the plaintiff to the
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extent of alleged profits of the Company because of the redemption, based upon unjust enrichment. On May 22,1978, the District Court decided the case in the Company's favor on all counts. On June 19,1978, the plaintiff filed a notice of appeal to the United States Court of Appeals for the Seventh Circuit.
j On October 26,1976, the Company filed a complaint in the United States District Court for the Northern District of Illinois, Eastern Division, against Atlantic Richfield Company (" ARCO"). The complaint i
stated that ARCO has failed to deliver diesel fuel oil to the Company in the years 1974 through 1976 in the i
quantity and at the prices required by a contract between ARCO and the Company. A motion to dismiss the complaint, filed by ARCO, was denied on April 13, 1977. The Company's complaint, as amended, j
requests actual and liquidated damages of approximately $55,000,000. On August 5,1977, ARCO filed a counterclaim against the Company requesting actual and liquidated damages of approximately
$35,000,000. The counterclaim alleges that the Company breached the contract referred to above by failing and refusing to accept delivery of diesel fuel oil. On June 15, 1978, the Company's motion for summary judgment was denied and its motion to strike certain affirmative defenses was granted in part and l
denied in part.
f A complaint was filed against the Company on November 29,1976 in the United States District Court h
for the Northern District of Illinois, Eastern Division, by the Illinois cities of Batavia, Geneva, Naperville, Rock F
Falls and St. Charles which purchase wholesale electric power from the Company for reta4 distribution.
h The complaint alleges that the Company, through its rate structure, has monopolized and has attempted to monopolize interstate trade and commerce in the distribution and sale of electric power at retailin violation
_l of the Sherman Act, and has substantially lessened or destroyed competition for retailindustrialcustomers in violation of the Clayton Act. Such violations are claimed to have been intentional. The complaint seeks I
declaratory and injunctive relief and treble damages in the amount of $37,500,000. On September 15, 1977, the Court denied the Company's motion to dismiss the counts of the complaint relating to the level of rates charged by the Company to the plaintiffs. The Company has also filed an answer denying the allegations of the complaint.
I On December 28, 1976, Richards of Rockford, Inc. fi'ed a complaint against the Company and i
Sargent & Lundy. in the Circuit Court (Law Division) of Cook County, Illinois. The complaint, as subsequently amended, seeks $997,000 alleged to be owed by the Company for the purchase from the l
plaintiff of certain pollution control equipment and services in connection therewith. The complaint also alleges public disparagement of the plaintiff's product by the Company and false and misleading I
specifications by the Company and Sargent & Lundy relied upon by the plaintiff in the manufacture of the pollution control equipment, for each of which allegations the plaintiff seeks $5,000,000 in punitive damages and additional actual damages in an amount to be determined. Finally, the plaintiff claims that the Company and Sargent & Lundy conspired, with each other and a third company, against the plaintiff's E
business in violation of the Illinois antitrust laws, for which it seeks damages in the amount of $50,000,000.
On February 22,1977, the Company filed an answer denying the allegations with respect to the $997,000 alleged to be owed to the plaintiff and moved to dismiss the remaining counts of the complaint. The l
Compani also filed a counterclaim against the plaintiff, Darling-Delawcre Company, Inc., the plaintiff's parent, and Richard B. Kelley, the plaintiff's president, seeking actual damages of $25,000,000 and punitive damages of $5,000,000 for breach of contract and warranties, negligent misrepresentation and violation of the Illinois Consumer Fraud and Deceptive Business Practices Act. The counterclaim was also
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filed against the surety on plaintiff's bond. The Company has withdrawn a portion of its counterclaim which requested damages in an unspecified amount for false allegations made without reasonable cause in
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violation of Illinois law, 22 l
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Suits have been filed from time to time in the Circuit Court of Cook County, Illinois, Municipal Department, by the City of Chicago and the County of Cook, alleging violations by certain of the j
Company's generating stations or other facilities of environmental control ordinances. Suits have also been filed from time to time in the City Court of Hammond, Indiana, by the Hammond Air Pollution Control 1
Authority alleging violations by State Line station, owaed by Commonwealth Edison Company of Indiana, Inc. (the " Indiana Company"), of environmental con rol ordinances and air quality regulations of the Indiana Air Pollution Control Board. Penalties imposed on the Company and the Indiana Company (the
" companies") to date have not been material.
Water Quality Regulation. Under the Federal Water Pollo! ion Control Act of 1972, National Pollutant i
Discharge Elimination System (" NPDES") permits for discharges into waterways are required from the d
Federal Environmental Protection Agency or from state authorities to whom the permit program has been delegated. Such discharges must conform with standards which hoe been promulgated by the Federal i
Agency pursuant to the Act and with applicable state standards. The permit program for facilities located j
in the State of Illinois was delegated to the Illinois Environmental Protect an Agency on October 23,1977, except for certain matters then pending before the Federal Agency. The companies have received NPDES permits for discharges from all of their generating stations. Such permits require periodic renewal. The companies have also submitted evidence to the Federal Agency pursuant to its procedures to establish
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lack of need for modifications of the cooling water intakes and discharges at stations where permit conditions woGd impose that requirement. On December 21,1977, the Federal Agency issued a notice of a proposed determination that a new intake structure is required at the Company's Dresden station. If it becomes necessary to install closed-cycle cooling systems or other facilUies at existing generating
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stations, substantial additional construction expenditures would be involved.
On July 15, 1977, the Federal Agency issued an order finding the Company in violation of certain effluent limitations imposed by the NPDES permit for discharges at Crawford statior.. The Company has pending before the Illinois Environmental Protection Agency, pursuant to the delegation referred to above, l
a request fc modification of the permit which, if granted, would establish compliance. The Company has since notified the Federal Agency that it has completed the installation of equipment to achieve compliance with the effluent limitations in the present permit.
On October 20,1977, the Federal Agency ordered the Company to submit an applicatiu.
an NPDES permit with respect to the alleged unauthonzed discharge of various contaminants, a.
ding polychlorinated biphenyls, in runoff water at the Company's Maywood Technical Center. On November i
18, 1977, the Company submitted such application to comply with the order, but stated therein its reservations as to the appropiiateness of applying for the NPDES permit. The Maywood runoff has also been the subject of inquiries from the Attorney Genera! of the State of Illinois and the Illinois Environmental Protection Agency, and a notice of violation from the Metropolitan Sanitary District of Greater Chicago.
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The Company has presented to the Attorney General, the lilinois Agency and the District plans for control-ling the runoff.
On June 23,1977, the Division of Water Pollution Control of the Indiana State Board of Health issued a notice of violation stating that the Indiana Company's State Line station had violated certain effluent limitations imposed by the NPDES permit for that station.
Regulations published by the Federal Agency in Oaober 1974 established chemical discharge limita-tions for steam electric generating stations. The re tulations impose certain levels of control for specified substances by July 1,1977. The Federal Water Pollution Control Act, under which the regulations were i
adopted, also requires that applicab!e state water quality standards be met by that date. The companies j
have initiated a program for the installation of treatment facilities at their generating stations to meet the federal chemical dischargs regulations and state effluent standards. The estimated total cost of this i
program is $200,000,000. The first four installations are complete and it is anticipated that all such l
23 1
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k installations will be completed in 19/9. The lilinois Pollution Control Board grante1 the Company a variance from state chemical discharge limitations until certain specified dates wlen each of the installations at the Company's stations is expected to be completed. On October 27,19 '8, the Company filed a request to extend this variance to February 1,1979 at Waukegan and Powerton stations (where the i
original variance expired on November 1,1978) due to delays in completing the installations at those statiors. Although the Federal Agency and the Company had stipulated that the Company's compliance g
schedule is a reasonable one, on August 19,1977 the Federal Agency issued orders finding that 11 of the
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Company's 12 generating stations now in service were in violation of certain of the effluent discharge limitations referred to above. The orders require the Company to show cause why the Federal Agency should not refer the violations to the United States Attorney for initiation of judicial proceedings. The Federal Agency has issued a policy statement on proceedings involving such violations which states that, in any disposition thereof, Agency personnel should seek a fine or settlement penalty in an amount at least equal to any costs the violator has saved by non-compliance (not exceeding the maximum fine of $10,000 j
for each day of violation allowed by the Federal Water Pollution Control Act). On November 11,1977, the Company filed a petition with the Federal Agency which, in essence, requests variances for these
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generating stations and for the Indiana Company's State Line station until the comp!iance program is completed.
The Company entered into an agreement with the Attoinev General of the State of Illinois,12aak Watton League of America and Illinois State Community Action Program of the United Automobile, Aerospace and Agricultural Implement Workers of America on March 27,1972 requiring that, except in certain circumstances, both units at the Quad-Cities nuclear generating station be operated with closed-
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cycle cooling beginning May 1,1975. Based on the agreement, an order dated December 13,1972 was I
issued by the Illinois Commerce Commission requiring the Company to ope; ate such units with closed-f cycle coo!ing by May 4,1975. The Commission made compliance w:th the terms of this order a condition j
cf a portion of the rate increases granted to the Company by the Commission in its rate orders of July 10, 1970 and December 10, 1971. As indicated under " Electric Rate Increases," there is a proceeding pending before the Illinois Commerce Commission with respect to the Company's environmental control measures. Tests of the closed-cycle cooling system at Quad-Cities station conducted by the Company in-dicate that the system, which is a spray canal, operates at substantially less than anticipated efficiency.
The generating capability of the two units at Quad-Cities station is substantially reduced by operation of
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both units with the existing closed-cycle cooling system on days when outside temperatures are high. The
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spray canalis currently being operated during warm weather so as to dispose of only a portion of the waste heat under a force majeure provision of the agreement which allows the Company to discharge some of the heated water into the Mississippi River through a diffuser pipe when completion of the closed-cycle cooling i
system has been delayed by events beyond the reasonable control of the Company The Attorney General l
has stated to the Company that he disagrees with the Company's interpretation of the agreement. The Company believes, and on March 8,1978, filed a petition with the lilinois Pollution Control Board to demon-strate, that operation of the diffuser pipe has not had a significant impact on aquatic life or caused sig-nificant ecological damage. The revised NPDES permit issued by the Federal Environmental Protection Agency on February 10,1977 for the station also requires that the station be operated with closed-cycle cooling, but the Federal Agency has informed the Company that it has stayed that requirement in the revised permit pending resolution of certain legalissues raised by the Company. The effect of the stay is to f
require that the station be operated in accordance with the agreement referred to above. The revised NPDES permit expired by its terms on July 1,1978. Application for its renewal has been filed with the Illi-nois Environmental Protection Agency, and the pendency of that application has the effect, in the opinion l
of counsel for the Company, of extending the term of the February 10,1977 NPDES permit. The Illinois l
Agency has issued notice of a proposed new NPDES permit for the station which would allow continued partial open-cycle operation, but the Company does not know what conditions may be contained in the
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final permit.
Under a provision of the lilinois water quality standards, the Company is required to make a showing j
with respect to several of its generating stations that five years after the standard became effective or five 24 l
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years after beginning operation the thermal discharge from such stations has not caused and cannot reasonably be expected to cause significant ecological harm to the receiving waters. Applications with respect to such showings have been filed with the Illinois Pollution Control Board for Zion, Waukegan, Dresden, Quad-Cities and Kincaid stations ine applications concerning Kincaid. Zion and Waukegan stations have been approved by the Illmois Pollution Control Board.
Air Quality Regulation. On November 12, 1969, the Illinois Commerce Commission, on its os 1 i
motion, entered an investigative order directing all electnc utility companies in Illinois to present evidence j
concerning air pollution attributable to electric generating facilities. Hearings with respect thereto have i
been held and further hearings may be conducted in the future.
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The Federal Environmental Protection Agency has promulgated a regulation designed to prevent significant deterioration of existing air quality. It is not expected that the regulation will have an effect on any 3
of the Company's exisung generating facilities or those under construction. Its impact on the construction of fossil-fueled generating stations in the future is uncertain. The 1977 amendments to the Federal Clean J
Air Act provide for limitations on certain new or expanded emission sources and require use of emission i
control devices or precombustion fuel cleaning for such sources, except under limited circumstances. The regulation and the statutory amendmersts could affect the siting, construction and cost of future fossil-l fueled generating units.
1 Air quality regulations promulgated by the Illinois Pollution Control Board impose state-wide restric-j tions on the emission of particulates, sulfur dioxide, nitrogen oxides and other air pollutants and require i_.
permits from the Illinois Environmental Protection Agency for the operation cf emission sources. Of the Company's fossil-fueled generating facilities subject to this requirement, having a current aggregate capability of 10,611,000 kilowatts, units aggregating 5,947,000 kilowatts have such permits. The l
Company is attempting to obtain permits or variances for the remaining units. The 1977 amendments to
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the Federal Clean Air Act may require lilinois to adopt more stringent emissions limitations than are now applicable to certain of such facilities.
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The Company has had pending before the Illinois Pollution Control Board a requ,st for a variance from the sulfur dioxioe limitations for Kincaid Units 1 and 2 (aggregate capability of 1,212,000 kilowatts) based on a compliance plan calling for the use of a supplemental control system as a permanent method of compliance at the station. The 1977 amendments to the FederalClean Air Act do not permit the 8pproval of such a plan. Tne Illinois Board has proposed the adoption of revised sulfur dioxide emission limitations with a
which these two units may be able to comply. The Illinois Board has granted a variance for the two units with respect to particulate limitations, based on a construction program for the installation of two new precipitators and a new stack expected to be completed by October 1981 at a substantial cost.
1 i
On August 3,1978, the Illinois Pollution Control Board granted a variance until July 1,1979 from the applicable sulfur dioxide emission limitations for the Company's Dowerton station (aggregate capability of i
1,700,000 kilowatts). The Company intends to achieve compliance at Powerton by July 1,1979 through f
j the use of low sulfur coal. The Govemor of Illinois directea that public hearings be held to determine the economic and employment impact of the Company's decision to stop using Illinois coal at Powerton j
station and such hearings have been completed. The 1977 amendments to the Clean Air Act may give the j
Govemor authority under certain circumstances, with the written consent of the President of the United States, to prohibit the use of coal other than Illinois coal. The variance referred to above would terminate if j
the Company were ordered to use Illinois coal at Powerton ctation. The Company believes that total j
construction and operating costs for Powerton station would be substantially increased if it is required to i
install scrubbers as a method of compliance rather than using low sulfur coal.
On July 6,1978, the Attorney General of the State of Illinois filcd a complaint against the Company in j
the United States District Court for the Northern District of Illinois, Eastem Division, and a complaint againct i
the Company and four of its officers in the United States District Court for the Southern District of Illinois, 25 i
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F Southern Division, with respect to Waukegan and Kincairi stations, respectively. The complaints allege l
violations of the Federal Clean Air Act and certain Illinois air pollution regulations with respect to operation without permits from the Illinois Environmental Protection Agency and with respect to particulate and sulfur I-dioxide emissions. The complaints seek civil penaltiec as well as injunctions to cease operating the stations F--
until compliance is achieved. On the same date, the Attorney General also notified the Company that suit would be filed against the Company and its officers and directors in United States District Court for alleged violations of the Federal Clean Air Act and certain Illinois air pollution regulations at Joliet and Will County I
stations, including operation without operating permits.
f On August 21,1978, the Federal Environmental Protection Agency issued notices of violation alleging P
violations of the Federal Clean Air Act at the Company's Joliet and Will County stations with respect to l
operation without permits from the Illinois Environmental Protection Agency and with respect to violations of Illinois standards concerning particulate and visible emissions. On August 31,1978, the Federal Agency issued a similar notice alleg ng such violations at the Company's Waukegan station. Thirty days after such a notice of violation, the Administrator of the Federal Agency may issue an enforcuent order requiring compliance, assess and colect a noncompliance penalty or commence a civil or uiminal action.
Under the 1977 amendments to the Federal Clean Air Act, the companies may be subject to the assessment of noncompliance penalties for violations of applicable air emission limitations occurring on or
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after July 1,1979 (whether or not the source of emissions is the subject of a variance or consent decree).
l The statute provides that the amount of the penalty will be no less than the economic value which u
noncompliance may have for the owners of the violating source. When compliance is attained, some er all of the pena!!y would be refurded for actual expenditures made to attain compliance, but such refunds
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could be substantially less than penalties paid. The noncompliance penalty is in addition to civil penalties a court can order under the Act, including fines (not exceeding $25,000 for each day of violation) and injunctive relief.
l On August 8,1977, the Federal Environmental Protection Agency notified the Company that Units 2 and 4 of the Indiana Company's State Line station had on certain dates violated a regulation of the Indiana Air Pollution Control Board w h respect to visible emissions. Thirty days after the date of the notice, the a
Administrator of the Federal Agency may issue a compliance order or may commence proceedings in a federal district court. On January 23,1978, the Federal Agency notified the Company that it will be requireJ to install a monitoring system to determine whether the State Line station is in compliance with the visible emissions regulatienc.
Arbitration. There is presently underway an arbitration proceeding between the Company and l
General Atomic Company, Gulf Oil Corporation and United Nuclear Corporation, dealing with the l
Company' challenge to the purported termination by General Atomic Company of a contract to supply i
nuclear fuel for the Company's LaSalle County station (under construction), on grounds of force majeure I
and commercial impracticability. If the contract is found to have been validly terminated, the Company i
will incur in the future increased costs for nuclear fuel for LaSalle County station, but is unable to determine l-at this time the amount of such increase. Any such increased costs for the most part would not affect the Company's earnings until the middle 1980's.
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item 5. Increase in Amount Outstanding of Securities or Indebtedness.
Number of Shares
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Common stock, $12.50 par value per share:
Outstanciing at June 30,1978,
77,162,862 1
Conversion of $1.425 convertible preferred stock on various dates (1).
32,984 i
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Conversion of warrants on various dates (2).
16,542 Purchased upon surrender of warrants on varicus dates (2).
31 i
Purchased by participants in the Automatic D;vidend Reinvestment and Stock Pur-d chase Plan on August 1, 1978(3).
286,696 Outstanding at September 30,1978.
77,499,115(4) g Preference stock, cumulative, without par value:
Outstanding at June 30,1978 17,999,549 Add-issuance of $8.85 series on July 27,1978 (5) 750,000 I
Outstanding at September 30,1978.
18,749,549 i
j (1) The sharos of $1.425 convertible preferred stock are converticle at the option of the holders thereof, at any time,into common stock currently at the rate of 74/100ths of a share of common stock for each 5
share of convertible preferred stock.
E (2) Each warrant entitles the holder to purchase one share of common stock for $30 or to convert such v> arrant into common stock at a conversion rate of one share of ccmmon stock for three warrants.
(3) The net proceeds from the sale of 286,696 shares of common stock aggregated $7,698,000, of which
$3,584,000 was credited to the common stock account and $4,114,000 was credited to premium on l
common stock and other paid-in capital account.
(4) Before deduction of 314 shares of common stock held in treasury which were rescquired from par-3 l
ticipants who withdrew from the Automatic Dividend Reinvestment and Stock Purchase Plan.
(5) The Company entered into Purchase Agreements each dated as of July 20,1978 with five institutional investors for the sale of 750,000 shares of $8.85 Preference Stock for $75,000,000 and on July 27, 1978, the Company delivered the shares and received proceeds of $75,000,000. The sale of the shares was made in an exempt transaction under Section 4(2)of the Securities Act of 1933, as amend-ed, as a transaction by an issuer not involving any public offering and, accordingly, the shares were not registered under said Act. The entire net proceeds were poplied by the Company to the payment of outstanding short-term notes payable issued to provide funos for the construction program, or directly toward that prograrn.
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I ltem 6. Decrease in Amount Outstanding of Securities or indebtedness.
i Numberof Shares or Warrants Common stock purchase warrants-1971 Warrants and Series B Warrants (1):
Outstanding at June 30,1978 694,987 j
Deduct-Warrants surrendered-For conversion into common stock on various dates.
49,693 To purchase common stock on various dates.
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Outstanding at September 30,1978.
645,263 1
$1.425 convertible preferred stock cumulative, without par value (2):
Outstanding at June 30,1978 2,644,408 Deduct-Surrendered for conversion into common stock on various dates.
44,591 Outstanding at September 30,1978.
2,599,817 (1) Each warrant entitles the holder to purchase one share of common stock for $30 or to convert such warrant into common stock at a conversion rate of one share of common stock for three warrants.
(2) The shares of $1.425 convertible preferred stock are convertible at the option of the holders thereof, at any time, into common stock currently at the rate of 74/1C0ths of a share of common stock for each p
share of convertible preferred stock.
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item 8. Other Materially important Events.
f:
The United States Congress has enacted energy legislation which, among other things, establishes na-i tional standards for consideration by state regulatory agencies in determining utility rates and imposes g
other requirements on the operations of utilities, including the Company. The legislation requires state regulatory agencies to hold evidentiary hearings with respect to the desirability of implementing rate struc-tures utilizing cost-of-service pricing, time-of-day rates, seasonal rates and interruptible rates and also with
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I respect to the use of volume rates and automatic rate adjustment clauses and other matters. Because of the complexity of the legislation and the uncertainties in its interpretation and implementation, the effect of I
the legislation on the Company cannot be predicted.
l Item 9.
Exhibits and Reports on Form 8-K.
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(a) Exhibits.
Exhibit L
Number Description of Exhibit 2-1 Composite conformed copy of Purchase Agreements dated as of July 20,1978 by and between the Company and The Prudential Insurance Company of America, i
Prudential Property and Casualty insurance Company, Prudential Reinsurance Com-i pany, Metropolitan Life insurance Company and Allstate Insurance Company.
2-2 Articles of Amendment to Articles of incorporation of the Company effective April 5, j
1971, May 9,1975, April 23,1976, and April 28,1977 (Charter documents defining l
rights of the Company's stockholders). Exhibit 2-5 to Form S-7, File No. 2-60525, is incorporated by reference.
2-3 Statement of Resolution establishing $8.85 series of Preference Stock.
(b) Reports on Form 8-K.
None.
I 28 I
SIG N ATURES Pursuant to the requirements of tric Securities Exchange Act of 1934, the registrant has duly caused
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this report to be signed on its behalf by the undersigned thereunto duly authorized on the 9th day of November 1978.
COMMONWEALTH EDISON COMPANY Registrant By R. J. SCHULTZ R. J. Schultz Vice-President-Finance R. P. BACHERT By R. P. Bachert Secretary and Treasurer 29
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CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference in Form S-
- 16. Post-Effective Amendment to Form S-7 Registration Statement, File No. 2-42846, dated April 27,1978 and in Form S-16, Post-Effective Amendment to Form S-7 Registration Statement, File No. 2-60526, dated July 27,1978, of our report appearing in the Quarterly Report on Form 10-0 for the quarter ended Sep-tember 30,1978 of Commonwealth Edison Company.
ARTHUR ANDERSEN & CO.
Chicago, Illinois November 9,1978 OPINION AND CONSENT OF COUNSEL We have reviewed the statements as to matters of law and legal conclusions made in Note 13 of Notes to Financial Statements and in the first full paragraph on page 24 under " Item 1. Legal Proceedings" in Part 11 of the Quarterly Report on Form 10-0 for the quarter ended September 30,1978 of Commonwealth Edison Company. We are of the opinion that such statements are correct, and we hereby consent to the making of such statements, to the use of our name in connection therewith and to the incorporation of cuch statements by reference in Form S-16. Post-Effective Amendment to Form S-7 Registration Statement, File No. 2-42846, dated April 27,1978 and in Form S-16, Post-Effective Amendmtat to Form S-7 Registration Statement, File No. 2-60526, dated July 27,1978.
ISHAM, LINCOLN & BEALE FREDERICK R. CARSON By Frederick R. Carson Chicago, Illinois November 9,1978 30
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