ML20149M602

Commonwealth Edison 1987 Annual Rept

ML20149M602
Person / Time
Site:	Dresden, Byron, Braidwood, Quad Cities, Zion, LaSalle, 05000000
Issue date:	12/31/1987
From:	Oconnor J, Wisiol K COMMONWEALTH EDISON CO.
To:	Office of Nuclear Reactor Regulation
References
NUDOCS 8802260153
Download: ML20149M602 (44)

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To Our Shareholders:

. . Our centennial year,1987, was a year when your Company, through the dedicated etTorts ofits employes, accomplished much and continued to strise to reach its corporate objectives-completion of the current construction program, recovering a the costs associated with new facilities, and enhancement of our competitive position. Yet,1987 was also a year of disappointment.

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! - 1 Rate luucs l 3 j The principal disappointment came last July when the Illinois Commerce N Y Commission (ICC) rejected a proposal for settlement ofissues relating to our

! generating unit construction program and the level of electric senice rates. The i

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- . '.' propoul had been agreed to by the Company, the Governor and the Attorney General of the State ofillinois, the State's Attorney of Cook County and others, and had been endorsed by local business and labor leaders. As we described in our annual report to shareholders last year and in other shareholder communications, the proposal included, among other provisions, an increase in charges for electric j .

service designed to yield a 9.6% increase in annual revenue, and then a freeze of 1 -

rates for at least 6ve years, subject to increase only under extraordinary conditions

, beyond the Company's control.

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_ s Following rejection of the settlement proposal, the Company 6ted a request to

a.m. a, o conno, increase electric senice rates based on traditional rate determination methodology

] cwma, as prescribed by the Illinois Public Utilities Act. The 61ing was made in order to protect the legal rights of shareholders, although we continue to seek a rate settlement which resch es these issues other than by litigation of a traditional rate l case This request calls for an increase in electric operating revenues of 27% or about

$1 A billion on an annual basis. Our request was 61ed with the ICC on August 21, 1987, which b) law has up to elesen months to make a decision. The rate request l principally reflects the costs associated with Byron Unit 2 and Braidwood Units I and 2.

l l l Construction Program l l Both Byron Umt 2 and Braidwood Unit I were placed in service during the year l t

and the last generating unit in our construction program, Braidw ood Unit 2, entered its 6nal operational testing phase w hen w e completed loading fuellast December 27.

It is scheduled to be placed in senice in mid-1988.

l The Braidwood units are s irtually identical to the By ron units. it was By ron Unit I i w hich recen ed w ide acclaim last y ear as the unit w hich in 1986, its 6rst full > ear of

) operation. produced more electrical energy than any other generating unit in the l United States.

l The completion of Braidw ood Unit 2 will mark the beginning of a substantially less espensise fne year construction program. For the period 1988 through 1992, our program will need $165 billion, almost 30% less than the fn e-year program appros ed just two years ago, and the Company's smallest construction program since the 1972-1976 period.

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Earnings and Dbidends in 1987, c:rnings per common share were $4.73, up 4C from earnings per common g$g share of $4.69 in the prior > car. This increase in earnings was achieved primarily $ $ @

through an increase in kilowatthour sales and a stringent cost containment program, and despite grener expenses for depreciation and operation and maintenance costs g principally resulting from placing in sersice Byron Unit 2 in April and Braidwood 5 g Unit 1 in November. i4 in 1987, your Board of Directors authorized dividend payments of $3.00 per common share at the rate of 75C per share each quarter. This marked the 98th year of consecutive quarterly dividends on common shares.

The dividend yield per common share was 9.5%, based on a price per common share of $31%. the average of the high and low prices at which our shares were traded during the year.

O Neo President Bide L Thomas w as elected President of the Company at a meeting of the Board of

!]ll((l Directors on September 30,1987. He had been Executive Vice President since Q,conewm January 1980 and has served with distinction as a senior otheer and manager with man.or ooan) i responsibility at var ous times for virtually every functionti area of the Company's line organization. While Bide has succeeded me as President, I will continue to serve as your Chairman and chief executive otheer.

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, .o I firmly believe that Edison employes hold the key to our future. Successful  ;

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companies do not achieve success by accident-resourceful employ es, three of n u hom are introduced to you later in this report, make it possible. Over the course of g

our history our Company has faced many challenges. In each case our employes & n rose to the test and ultimately created a better, more efhcient operation. The quality and commitment of Edison employ es augurs well for shareholders and customers alike.

Sincerely,

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, 0 l James J. O'Connor g jij g g g g g g

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l Chairman

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l February 19,1958 commen pn) i l

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Oue Construction Program and ORAIDWOOD STAfl001 The completion of Braidwood Unit 2 will bring our current generating unit -

construction program to an end. Fuelloading began on December 21,1987 and was completed on December 27th. The Unit is now undergoing its fmal operational tests, liere we see Bob Byers, maintenance engineer,in the Braidwood Unit 2 reactor building. Bob is one of the dedicated employes w ho helped build Braidwood station. As a member of the Braidwood Project construction team, Bob was cost of Nucles, involved in guiding the completion of the Unit 2 electrical system. This was an o.nereune capacity important factor in the acceleration of the overall construction schedule d. iring the

• • ' $ W*W past two years. Currently, Bob is a member of the station operating organization.

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Initial plans for our virtually completed nuclear generating unit construction g

• , cf , a program began to take form in 1970 when our peak load was about 10 million jM g

f y kilowatts and was growire. in excess of 7% per year, and sales to consumers were

5 , , .) 45.7 billion kilowatthour - tsack then, our production facilities included two nuclear exo ' i '

generating units; five more nuclear units were under construction-the last ofw hich

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, , was just four years from commercial service. Plans for additional production s .,- 3 * + ,;~

, facihties, w hich were later scaled back as load growth slackened, included the

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constmction of sa nuclear units at three new sites. The first of these new stations E ' $ *E-* 7 . ,,,..w ,, a 1 was to be the bSalle County station near Seneca, Illinois. Each reactor would m 7,* , y , """4~ i power a generating unit with a net capability of 1,078,000 kilowatts. The next

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, station would be located near Byron, Illinois and each reactor would power a I generating unit with a net capability of 1,120,000 kilowatts. Our last station, g :. t.s.u *n ,,a -

Braidwood station, was to be built south of Joliet, Illinois and have the same

, i capability as Byron station.

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.m .A m3w%mmwmee This construction program is being carried out in accordance with our primary cost per womait obligation to provide reliable service to all of our customers at the lowest ce*en E mm practicable charge. At bSalle County, the first unit was placed in senice in 1982

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waa. m sms and the second unit in 1984. Byron Unit I was placed in senice in 1985 and Unit 2 last year. Shortly thereaner, Braidwood Unit I was placed in senice, and now 43 um et em 53 m Braidwood Unit 2 is scheduled for service in mid 1988.

uuns my Also shown here is a chart depicting the cost per kilowat; of nuclear generating capacity for units constructed in the United States concurrently with our six newest units. The chart shows our units are among the low est cost units placed in service in the 1980s, costing substantially less than the average cost of nuclear units built by others. This accomplishment, which will help hold down the cost of electricity, is one of which our employes are justifiably proud.

Commonwealth Edison's nuclear net capability is now 10.4 million kilowatts and last year, accounted for over 66% of our electric energy generation. In 1987, our peak k3ad was about 15.7 million kilowatts and sales to consumers exceeded 66.4 billion kilowatthours. We are confident that our nuclear operations will continue to play a key role and benefit both our shareholders and our customers Furthermore,

! our nuclear units will provide our customtrs with adequate supplies of reliable i

electric power at stable prices for years to come. And yes, employes like Bob Byers

nave "made it happen" l

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The Role of MARKETING in a Competitive Energy Environment Commonwealth Edison's marketing personnel strive to learn as much as possible about the customer's business in order to help customers get the best value for their energy dollars. This calls for an understanding of the impact of competition on the customer's business as well as on our own. Shown here is Dennis Naumann, one of our creative marketing engineers who aggressively pursues opportunities to market our ser ice each and every day. Dennis is quick to rectgoize marketing opportunities, knowing that industrial customers are anxious to increase productivity and product quality for the purpose of becoming more competitive.

What our customers need from us, as their electricity supplier, is an adequate and reliable source of su pply at stable prices: a benefit w hich w ill result in large measure from our extensive use of nuclear power.

One area where all of this comes together is the industrial process heating market.

Here, our marketing people must have a thorough t:nderstanding of the customer's manufacturing operations, the latest applicable process technology and the l

alternatives available from competing energy sources.

One example of a successful electric process heat application is at Jernberg i Industries, a manufacturer located in Chicago. The company had a sales volume of l approximately $SO million in 1987 and employs about 400 people. Jernberg l Industries purchases steel bars and, during the manufacturing process, heats the material until it's red hot and highly malleable. Then, in a forging operation, it presses the raw material into steel forgings. These forgings are delivered to their customers for machining and assembly into finished products. Jernberg Industries' customers include all of the domestic :atomobile manufacturers.

Jernberg Industries sought ways to upgrade product quality from that attainable with an existing gas furnace. This would allow them to expand their business.

Dennis Naumann knew that an electric induction furnace and the availability ofour special industrial des elopment rate were the solution to the customer's cost and quality objectives. Induction heating allows for better temperature control and more even heating of the raw material, which typically results in higher yields, better quality, less scrap, and lower production costs. Our industrial development rate is designed to encourage increased industrial actisity such as achieved by Jernberg industries.

Knowledge of the customer's business, production process, the appropriate process technology, and the competition, when combined with Dennis Naumann's sales efTort, resulted in the installation ofan electric furnace. Following the conversion to electric induction heating Jernberg industries achieved its cost and quality objectises. The efforts of Dennis Naumann, and others like him, are playing a crucial role in helping customers to use electricity in effective and efficient ways, and in increasing Company resenues and income through sales. Increasing sales allow the Company to get the most out ofits coal and nuclear generating facilities.

In 1987, we recorded the installation of oser 55.000 kilowatts in process heating equipment, an all'ime record for the Company.

7

.. o Service Unparalleled by CUSTOMER SERVICE Our Customer Senice organization is a principal point of contact between Commonwealth Edison and its customers. The mission of our Customer Service employes is to achieve customer ss.tisfaction by providing prompt and couneous service and by being fully responsive to each customer's inquiry.

In order to provide the high quality service we believe our customers deserve, we have an extensive array of employe training programs. These programs address technical skills, inter personal relations, and employe performance expectations.

Say hello to Sarah Gordon, shown here, an employe who exemplifies just what the job of a Customer Service representative is all about. Sarah is one of about 225 representatives who respond to the nearly six million telephone inquiries our customers make each year. To the customer on the other end of the telephone line.

Sarah Gordon is Commonwealth Edison.

Sarah is the Company wide winner of the 1987 Courtesy Awareness Program for Customer Senice employes. The purpose of the Courtesy Awareness Program is to increase employe awareness ofour customer senice objectives and to develop ideas to do the job even better. The 1987 program, named "The V.I.P ". was designed to underscore our belief that each of our customers is a Very Imponant Person who appreciates a courteous and personalized response. We recognize that the manner in w hich senice is delivered often is just as important as the senice itself.

To win the 1987 Courtesy Awareness Program award. Sarah competed with 1500 other employes by submitting an example that showed how she treats a customer as a V.I.P. Sarah's winning entry was:

" During a recent storm,6 customer called because his lights were out. lie stated he would need a wake-up call at 4:00 a.m. to get prepared for work. I called the customer at 4:00 a.m.and said"Thisis your wake-up call from Edison and Have a Great Day!". The customer was speechless."

Committed, concerned, and capable employes like Sarah Gordon are what customer sen ice is all about.

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Selected Highlights Diddend Reimestment s'.id Stock Purchase Plan Board and Management Changes Modifications Norris A. Aldeen retired, following the 1987 annual meeting As a result of reduced financing requirements, the Dividend of stockholders, after sening 17 years as a Director of the Reinvestment and Stock Purchase Plan was modified, Company. By ron Lee, Jr., Executis e Vice President, retired etTective January 1,1988. from the Company upon being named President and Chief Executive Officer of the Nuclear Management and Resources The principal modifications to the Plan provide for the Council. He will continue to serve as a Director. Bide L purchase of shares of the Company's common stock for Plan Thomas, formerly Executis e Vice President of the Company, participants on the open market by The First National Bank was elected President, succeeding James J. O'Connor in that of Chicago acting as agent for participants, and for the capacity.

discontinuation of the 5% discount on shares rurchased with reinvested dividends. Instead, the price to participants of Also during the year, James W. Johnson and Cordell Reed shares purchased under the Pla n wil; be the weighted average were elected Senior Vice Presidents; Dennis P. Galle and J.

price (including brokerage commissions) at which such Stanley Grases were elected Vice Presidents; and Ernest M.

shares are purchased on the open market. These changes Roth was elected Vice President and Treasurer. Other enable the Company to mntinue to offer the Plan without management changes during 1987 were: Jack S. Bitel was issuing additional shares ofcommon stock, appointed Manager of Nuclear Safety, repiacing Bennie B.

Stephenson who retired; Howard R. Carlson was named We are continuing the Plan as a simple and convenient way Manager ofInvestments; William J. Cormack was made for stockholders to increase their ow nership of shares of the Manager of Public Affairs; William H. Downey was Company's common stock. If there are any questions appointed Operating Manager, replacing James A. Schneider regarding the modified Plan, please call or write to who retired; Anhur W. Kleinrath was named Executive Shareholder Services using the information provided on the Assistant to the President; Michael J. Wallace was made last page of this annual report. Manager of Projects and Construction Senices; William H.

Dunbar, Jr. became Division Vice President-Chicago North; and Robert D. Fredericksen was made Division Vice President-Rock River (Rockford).

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l l  !, ,i Summer Peak Lead Winter Peak Lead W Nuclear Fuel Savings E Construction (mAms W khafts) (mJims d b6a'ts) vs. Low Sulfur Coal Espenditures (Mes of OAa's) (mems d 0%ars)

Nucleat Generation Funds Prov6ded g gecent d tota") LatemaHy aftw Dividende yercent d tota')

Management's INacession und Analysis of Financial Condition and Results of Opeestions ,

t Liquidity and Capital Resources on financial market conditions during the f ve year period.

! Capital Budgets. The Company's program for the Any additional securities issued during such period would be ,

I construction of additional nuclear generating capacity is issued principally for the purpose of refunding outstanding l l virtually complete, with the last unit. Braidwood Unit 2, securities. The Company's new money fmancing l expected to be placed in senice in mid 1988. The Company requirements have decreased significantly as its nuclear 3 has expended approximately $ 14.5 billion through December generating capacity construction program nears completion. .

31,1987 on its original investment in and subsequent The Company has amended its dividend reinvestment plan, l improvements to its nuclear facilities in service. The effective January 1,1988, to provide that shares of common j Company does not expect to add any additioral genereting stock will be purchased for participants on the open market i capacity to its system prior to the late 1990s. rather than directly from the Company, and the Company -

has discontinued issuing new common stock under that plan.  ;

The construction program of the Company and its electric A portion # the Company's fmancing will continue to be utility subsidiary, Commonwealth Edison Company of provided through the sale and leaseback of nuclear fuel.

Indiana, Inc., for the five year period 1988-92, consists -

principally ofimprovements to its existing electric The Company has effective "shelf" registration statements  :

production, transmission and distribution facilities, on file with the Securities and Exchange Commission for the j The construction program calls for electric plant and sale of up to an additional $420,000,000 principal amount of ,

i equipment (excluding nuclear fuel) expenditures of debt securities, consisting of first mortgage bonds and notes, l approximate!y $3,650 million, including $950 million in for the purpose of discharging or refunding outstanding i i 1988, $800 million in 1989, $750 million in 1990, $600 securities, and for the sale of up to 5,000,000 shares of million in 1991 and $550 million in 1992. These estimated common stock, The proceeds of debt securities issued during expenditures include $1,585 million for production facilities, 1987 were used principally to discharge or rcfund .

$1,865 million for transmission and distribution facilities outstanding securities.

and $200 million for general plant. Construction costs are based on a 6% annual escalation rate. Purchase The Company's fmancial condition is dependent upon its l

commitments, principally related to construction and nuclear ability to charge rates w hich provide for the recos ery ofcosts i

! fuel, approximated $1,291 million at December 31,1987. In of and a return on completed construction projects, and addition, there are substantial commitments for the purchase which enable it to maintain adequate debt and preferred and l {

of coal and oil under long term contracts. The construction preference stock coverages and common stock equity i program will be modified as necessary for adaptation to earnings. Until a rate increase is granted to reflect the costs of [

changing economic conditions, timeliness of rate increases Byron Unit 2 and Braidwood Unit I (and Braidwood Unit 2 and other relcsant factors, after it is placed in senice), or the ICC authorizes alternative l I accounting treatment with respect to those units, future  !

CapitalResources. The Company presently estinistes that earnings will be adversely affected (see "Nuclear Plant  !

more than three-fourths of the funds required for the 1988 92 Construction Program and Rates" below).

construct.on program and other capital requirements, I including refinancing of debt maturities and sinking fund j obligations, will be provided from internal sources, That  ;

l estimate assumes, howeser, that substantially all of the rate increase authorized by the lil%in Commerce Commission's l

! (ICC) October 1985 rate order remains in effect, that the i

Company does not receive an adverse order in the l Braidwood construction proceedings with respect to recovery ii ofits investment in Braidwood Unit 2 and that it receives I

I adequate and timely rate increases to reflect the costs of that i unit and of BraV wood Unit I and Byron ' Unit 2 (see l "Nuclear Plant Construction Program and Rates" below). l l The type and amount of external 6nancing will also depend it I

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3 The current ratings of the Company's se.arities by three rates to re0cet the inclusion in rate base of Byron Unit 2 and 2 i principal securities rating agencies are as follows- Braidwood Units I and 2, as well as to its efforts to continue ,

gt noa,e on, a in effect its previous rate increase redecting the inclusion in  ;

i Moo #s aPoors Pvps rate base of Byron Unit 1. The Company is also facing erTorts  !

by interrenors to obtain the cancellation of Braidwood Unit i

) Fest mortgage and secured polluten a control bonds . . . Baat BBB+ 7 2 and the withdrawal or alteration by the ICC of the 1

Putwy-heid deoentures and unsecured Certi6cate of Public Convenience and Necessity authorizing penuten control otAgatons . Baa2 BBB 8 construction of that unit.  :

ee s . . l For additional information concerning weh legal and j i Cornmered paper , , . P2 A2 Dun 1- regulatory proceedings and related matters, meluding  !

j 6nancial accounting requirements, see the following Notes to i

Financial Statements: (a) Note 2 concerning the ICCs .

The foregoing ratings redect downgradings announced by rejection in July 1987 of a proposed Plan with respect to .

. Standard & Poor's on July 20,1987 and by Moody's Byron Unit 2 and Braidwood Units I and 2 which would Investors Service on September 23,1987 Standard & Poor's hve provided, among other things, for a rate increase of  ;

stated that "the [lCCr,] repeated rejection of approximately 5660 million on an annual basis followed by a i 1 Commonwealth's settlement efforts relating to ratemak,ng i 6ve ear moratorium on rate increases;(b) Note 3 i j treatment for three nuclear units underscores the conceasing further ratemaking proceedings being conducted deterioration of regulation in the state and illustrates the r 3 by the ICC with respect to Byron Unit I as a result of appeals i j firm s considerable difficulty in securing cost recovery fc. its '

of the ICC's October 1985 rate order permitting that unit to j substantial plant investment. According to Moody s, ' the be included in rate base and concerning revenues being rating action recognizes the s,gnificant i regulatory uncertainty 4 collected subject to refund in connection with such order;  :

concerning sufficient and timely rate relief for three nuclear and (c) Note 4 concerning the Braidwood construction piants. The maintenance of current rate lesels during the regulatory proceedings-and the potential for rate decreases proceedings in w hich the ICC is considering the cancellation

'i j associated with the Byron I rate case (and the 1983 fuel cost of Braidwood Unit 2 and the withdrawal or alteration of the '

reconciliation proceedingb.-will be madequate to support the Certificate of Public Convenience and Necessity authorizing I

construction of that unit, and concerning the proposed new former credit rating lesel. In August 1986, Duff & Phelps rates 6 led by the Company with the ICC designed to inerease j advised the Company that it had placed the Company's operating revenues by approximately $ 1.4 billion (27%) on an  !

secunties on its watch list" and lowered the Company,s commercial paper ratirg from Duff 1 to Duff 1 . annual basis principally to reflect the costs of Byron Unit 2 '

and Braidwood Units 1 and 2.

if a substantial portion of the October 1985 rate increase is CapitalStructure. The Company's ratio oflong term debt to

j disallowed, if the Company receives an adverse order in the total capitalization has decreased to 43.9% at December 31, i Braidwood construction proceedings ci if the Company is 1987 from 45.9% at December 31,1986.

l unable to obtain adequate and timely rate increms to reflect l the costs of Byron Unit 2 or Braidwood Unit 1 or 2 (or federal Tax Changes. The Tax Reform Act of 1986 (the Act) ,

alternative accounting treatment pending such increases), the signi6cantly modified many provisions of the federa's income  ;

} Company's securities ratings would be in danger of being tax law, The modifications include the reduction in the .

lowered further by the securities rating agencies. regular corporate income tax rate from 46% to 40%

(Mchnically 39.95%) for the year 1987 and to 34% for years  !

Nucle.it Plant Construction Program andRates. As indicated beginning after 1987, the repeal of the investment tat credit, i above, the Company's program for the construction of the lengthening oflives for depreciation of most utility {

j additional nuclear generating capacity is virtually complete. property, the adoption of a new corporate alternative r j Byron Unit I was placed in service in April 1985, Bpon Unit minimum tax and several other provisions that have an j

' 2 and Braidwood Unit I were placed in service in April and ads erse impact on the Company. There are transitional rules i November 1987, reapectively, and Braidwood Unit 2 is that phase-in some of the Att's unfavorable pruvisions, such 1 j expected to be placed in sersice in mid 1988. The Company as the repeal of the investment tat credit. The Act also  :

continues, however, to be invob ed in signi6 cant legal and provides that generally the portion of accumulated deferred  !

regulatory proceedings relating to its efforts to increase its federal income taxes, recorded at income tax rates greater rates to provide for recovery of and return on its investment than 40% for 1987 and 34% for later yem and related to l in these units (sometimes referred to as "including the units liberali>ed depreciation, are to be flowed back to income, as l in rate base"). The Company currently facs and expects that the timing ddicences reverse, over the remaining depreciable l ,

j it will continue to face opposition to its efforts to increase its !ises used for Gnancial reporting and ratemaking purposes #  !

i

}~ i i i i

12 l l I i  ;

t

the related property using the weighted averag: wrome tas off additional costs, if any, that are disallowed by the rates at which the deferred income taxes had been recorded. ICC in its further ratcmaking proceedings following the ,

For years after 1987, the amount of the Cowback to income Illinais Supreme f ourt remand of the October 1985 ICC l of accumulated deferred federal income taxes related to other order w hich adjusted rates to retlect the costs associated w ith timing differences recorded at income tas rates greater than Byron Unit 1. Also,in accordance with this standard, the 34% will depend greatly on the treatment authorized in Company may eventually be required to write off a  ;

ratemaking proceedings during future periods. substantial portion ofits insestment in Byron Unit 2 and 1 Braidwood Units I and 2, which would have a material Generally, the modifications of the Act have an adverse adverse effect on the Campany's financial position and impact on the Company's cash flow. As a result of the Act, results of operations.

the Company's liability for current federal income tates for the year 1987 increased by about $30 million. The magnitude Kilowalthour Sales. The Company's kilowatthour sales to of the adverse impact on the Company's cash flow for years ultimate consumers increased 3.8% in 1987 reflecting afler 1987 will depend greatly on the level of electric service unseasonably warm spring and summer weather. The rates that will be in effect during such years. Company's kilowatthour sales to ultimate ec,nsumers increased 2.0% in 1986 reflecting close to normal summer The ICC has approved a rider to the Company's rate and winter weather and a moderate increase in economic schedules, with respect to changes under the Act, pursuant to activity in the senice area. Kilowatthour sales to ultimate which the Company may be required to refund to customers consumers increased 0.8% in 1985 and were ads ersely up to 5.54% ofits resenues collected subsequent to June 30, affected by a sluggish economy, a much cooler than normal 1987. For additionalinformation, see Note 3 of Notes to summer and energy conservation by consumers.

Financial Statements.

Electric Operating Resenues. Rate increases approved by the Results of Operations ICC (see Note 3 of Notes to Financial Statements) had a Earnings Per Common Share. The Company's earnings per significant effect on the Company's electric operating common share were $4.73 in 1987, $4.69 in 1986 and $4.45 revenues in 1987,1986 and 1985 and are summarized as in 1985. Estnings per share haw been affected by rate follows:

increases w hich became effective in July 19S4 and October Effective Date Annual Revenues 1985, increased kilowatthour sales and stringent cost control im aansval efforts. However, earnings per share have been limited by increases in operation and maintenance espenses cnd NM 1985 WW Juty 18,1934 $2825 depreciation espense, which were significantly affected by , , _ _ m _ % ,,_,,,,

placing Byroa Unit 2 and Braidwood Unit 1 in senice in > - .- , st w w. .- -- w 1987, by a greater aserage number of common shares outstanding, by lower construction related credits in 1987, Operating revenues increased $195.3 million in 1987, the by a $70.0 million provision for revenue refunds in 1987 result of approximately $178.5 million from higher electric related to an ICC fuel adjustment clause reconciliation order senice rates and $197.3 million ofincreased base revenues for the year 1983 and by the factors discussed below. Byron resuhing primarily from increased kilowatthour sales, otiset Unit 2 and Braidwood Unit I will be in senice for an entire by a $70.0 million provision for revenue refunds related to an year beginning in 1958 and Braidwoc<l Unit 2 is expected to ICC fuel adjustment clause reconciliation order for the year be placed in senice in mid 1988. When units are placed in 1983 and $110.5 million in other items, primarily decreased senice, the related construction credits terminate and recos ery of energy costs.

additional depreciation and other costs of operating the facilities are incurred. Future earnings per share will be Operating revenues increased $514.4 million in 1986, the adversely affected until a rate increase is granted or the ICC result of approsimately $392.2 million from higher electric authorizes alternative accounting treatment with respect to senice rates, $ 61.0 million ofinereased base revenues derived such units. p:imarily from higher kilowalthour sales to commercial and industrial customers and an increase of 561,2 million in other See Notes 3 and 4 of Notes to Financial Statements for items, primarily increased recovery of energy costs.

information concerning the accounting standard which requires the Company to write off any plant costs, net of the Operating revenues increased $34.5 million in 1985, the income tas effects, when it becomes probable that such plant result of approximately $193.4 millior. from higher electric costs will be disallowed for ratemaking purposes. In January senice rates and an increase of $21,0 million in other items, 1988, the Company adopted the standard and recognized a primarily an increase in base revenues from higher net loss related to $101.5 million of Byron Unit I costs kilowatthour sales to small commercial and industrial disallowed by the ICC through a r statement of prior years' customers, offset by a $179.9 million lower recovery of financial statements. The Company will be required to write energy costs.

13

l i

J Fuct Costs. Fuel expense decreased in 1987 primarily The number and average net cost of kilowatthours purchased I due to the lower average cost of fuel consumed,ic0ccting and interchanged were as follows- i greater nuclear generation. Fuel expense increased in 1986 as 1987 W6 19R5 a result ofan increase in net generation ofelectric energy and the meressed average cost of fuel consumed due to the change m fuel sources of electric energy generated. Fuel

%  % g7 (395 g cost pematthour 2 60 2 04: 2 31 expense decreased in 1985 primarily due to the lower as erage cost of fuel consumed, reflecting greater nuclear generation.

MucRnde or &ntmcred Energy Costs-Ner. Electric The mix of the fuel sources of electric ener;y generation is determined primarily by sptem load, the costs of fact operstmg exrer.ses for the years 1987,1986 and 1985 reDett the net change m under or overrecovefed allowable consumed and the availability of nuclear generating units, including nuclear units placed m service in 1985 and 1987, energy c sts. S e Notes I and 3 of Notes to Financial The cost of fuel consumed, net generation of electric energy Statements.

and fuel sources of kilowatthour generation were as follows:

Opera: ion and Maimenance bpenscs. Operation and W7 W6 m maintenance expenses beressed in 1987 due primarily to an

Cost of fuel consumed (per moon Stu) increase in generating station operating expenses, an increase Nuc w $0 71 $0 74 $072 in expenses associated with placing two additional units in ,

coal $307 $300 $300 senice, wage increases and in0ation, offset in part by  !

Od $416 $6 87 $621 reductions in the number of employes and other savings.

Operation and maintenance expenses decreased in 1986 due

$8 g Net generation of electre energy (mAons of primarily to intense efforts to control costs and decreased blowatthours): 69,133 66,178 61213 pension expense offset by wage increases and inflation. ,!

i Fuel sources of blowattnour generabon Operation and maintenance expenses increased in 1985 due Nuc w 66 % tiO% $9% primarily to placing an additional nuclear unit in sen-ice, Coal 32 36 39 annual wage and other cost increases and an increase in the Od 2 3 1 number of employes.

1 _ sturalgas N - 1 1 100 % 100 % 100 % Depreciation. Depreciation expense increased for the years 1987,1986 and 1985 due primarily to additions to plant in It is anticipated that when Byron Unit 2 and Braidwood Unit service, including nuclear generating units placed in senice, i

i 1 are in senice for the entire year and Braidwood Unit 2 is and higher average annual composite depreciation rates, placed in service a greater percent of total generation will be Depreci.. tion did not commence on Byron Unit I until ,

electne service rates reflecting the melusion of the unit m rate from lower fuel cost nuclear generating units.

base became effective on October 29,1985, as discussed m Purchased and Interchanged Power-Xct. Amounts of Note 3 of Notes to Financial Statements.

purchased and interchanged power are primarily affected by system iosd, the availability of the Company's generating /nlerest on Dcht. Changes in interest on long term debt and units and the availability and cost of power from other n tes payable for the years 1987,1986 and 1985 were due to i utilities. Net purchased and interchanged power expense changes in average interest rates and m the amo.mts oflong- ,

increased in 1987 due to the increasul availabibty of power term debt and notes payable outstanding. Changes m m, terest on long trem debt also reflect the retirement and redemption from other utilities at costs lower than the incremental costs of generation on the Company's system. Net purchased and f vari us issues which were refmanced at lower rates. The 1

interchanged power expense decreased in 1986 due to the average amounts oflong-term debt and notes payable utstanding and average interest rates thereon were as l greater overall as ailability of the Company's generating units resulting in a decrease in kilowatthours purchased and lower IUO*5 average net cost of kilowatthours purchased. Net purchased N 1986 25 ,

and interchanged power expense decreased in 1985 due to the Long-term eebt. l greater overall availabili'y of the Compan>4. generating units, Awage amount i an increase in interchanged power delis cred to other utilities outstanding (maons) $6 7340 $6.465 8 $6031S 9BA and lower cost of power generated by the Company. Amage oferest rate 10 42 % 10 47 %

Mtes payable. ,

, Average amount eutstardng (meons) $272 5 $3254 $301.1 r Amage interest rate 6 66 % 7 12 % 8 10 %

l s ,

t 14 i

07her hems. The amounts of AFUDC reflect changes in the The ratios of earnings to 6xed charges for the years 1987, average levels ofinvestment subject to AFUDC and changes 1986 and 1985 were 3.00,2.99 and 2.85, respectively. The in the average annual rates as discussed in Note I of Notes to ratios of earnings to 6 sed charges and preferred and FinancialStatements. AFUDCwascontinued on Byron Unit preference stock dividend requirements for the years i987, 1 nom April 22,1985, the in service date, until electric 1986 and 1985 were 2.40,2.31 and 2.15, respectively.

sersice rates re6ecting the inclusion of the unit in rate base became etrectis e on October 29,1985, as discussed in Note 3 Business corporations in general has e been adversely affected of Notes to Financial Statements. AFUDC does not by inflation because amounts retained after the payment of contribute to the current cash flow of the Company. For the all costs has e been inadequate to replace, at increased costs, year 1987, the equity component ofAFU DCconstituted 33% the productive assets coniumed. Electric utilities have been of net income and the debt component, net ofincome lates, especially affected as a result of their capitalintensive nature was equivalent to 10% of net income, and regulation which limits capital recovery and prescribes installation or modi 6 cation of facilities to comply with See Note 14 of Notes to Financial Statements for information increasingly stringent safety and env;ronmental concerning the accounting standard which requires the requirements. Because the regulatory process limits the Company to use an asset and liability approach for 6nancial amount of depreciation egense included in the Company's accounting and reporting for income tates rather than the revenue allowance to the original cost of utility plant deferred method. The accounting standard must be adopted investment. the resulting cash flows are inadequate to by the Company not later than January 1989. provide for replacement of that investment in future years or preserve the purchasing power of common equity capital See Notes 3 and 4 of Notes to Financial Statements for previously invested.

information concerning the accounting standard w hich requires the Company to write off any plant costs, net of the The increases in electric operating resenues and net income iacome tat effects, when it becomes probable that such plant on common stock for the years 1987,1986 and 1985 costs will be disallowed for retemaking purposes and a compared to the respective prior year periods would be lower reasonable estimate of the amount of the disallowance can be if adjusted to reflect the effects ofinflation, made, through a cumulative adjustment to income or a restatement ofprior y ears' 6nancial statements.The standard was adopted by the Company in January 1988.

(

l l

15

"r a of Seleeled Con.e66 dated Financial Data 1987(1) 1996(1) 1935(1) 1964 55 (m rions of osa s eveert ner sha<e data)

Electne operattg revenues $ 5.674 $ 5,479 $ 4,954 $ 4.930 $4.634 Net income $ 1.086 $ 1,050 $ 956 $ 875 $ 802 Earrvngs per common shre $ 4 73 $ 4 69 $ 4 45 $ 4 43 $ 4 39 Cash dwdends declared per common share $ 300 $ 300 $ 300 $ 300 $ ' 3 00 Tctal assets (at end of yew) $18.164 $17.405 $16285 $14.713 313 634 Long-term ceN and pre'erence stock sutvect to mandatory redempten requiremems (at end of year and eiciud1ng current perten) $ 6971 8 7,143 $ 6 531 $6512 $ 6.329 (1) See Note 3 of Wes to Fnanct $ta'e-ents br e%eton ccreemog the e'ect # 61Tteg an a:cosntog stardard n .lcrsy 1M mhch requeef the Corrper'y to rec @2e a nel loss re!ated to i101 $ r%:n of Bron Vnft 1 Costs Osa.'io*ej ty thpCC through a res'Oement d pror yws' &nanc.al Of*9ents PIlce aang.' and Dividend. Paid pee Share of Common Stock 19A7 tby ouartersi 1996 (by quar'ers Fest Second TNrd Fourth Frst Second TNrd Foteth Price Range H,gh 38 36 4 35 % 36 % 35 % 35 % 34Ps 35 %

Lcw 34 32 % 33w 25 % 28 % 29L 30 % 31 %

Devdends Pad 754 75: 75 754 75: 75: 754 758

%s reported as NYSE Composde Trrisa: tons The Compa'y s ccmmon stock rs tr43ed on tre W York Vd*est ard FacA: sicck eachrges m,th the toer srcol CAT At Decernber 31,1987, there nere approttnate[

2a6 000 bcuers of record v the Compa~y a comrre stock 1.u ..e.6. ar,. Sai.. -

Electnc Operating increase Mo* sttnour increase increase Revenues (t)(2) Over Sales Onr CNet (thousaacs) 1936 (mdlions) 1936 Customers 1996 Resident.a1 $2.174 285 13 1 % 19 016 47% 2B&522 1.1%

Smati commercia! and rdustria! 1 682 819 31% f3) 20,128 257,688 57%C3) 23%(3)

Large commercial and rcastr.a! 1.332 973 2 7%'(3) 20.697 03%{3) 1.351 1.5%(3)

PutN a# crit <s 428 271 17% 6,142 67% 11.432 31%

Ektne racads 28.205 05%* 406 20% 2 -

V't mate cons /ners-tota' $5.646 553 51% 3,096 995 66 3&9 36% 12%

Provision for re'.enue refunds-u't. mate consumers (70 019) - -

V' tera'e cor$/ners-net $5,576 $34 66 389 3.096.995 Sales for resa e 51,964 1,101 4 Ot er revenues 45 284 - -

Totat $5 673.782 67 4X) 3 096 939

'Dec ease (t) Purs 4nt 10 the .kre 16 1967 de?saon d the Ancks $Upre're COf1 F4 the Vay 16,1996 orde* W the Circud Court of Cook Cofry, l!Vitas eectic opeastng re, trues nctu3e re,enues satet to re+ana et $'K 330 000 tar the par 1967 (2) PursEtt to a roer to ,t3 ra'e s?e1Aes el' d by the ComC46y a t9 the Diochs CON'e'ce CorvLslaon vi Connect @ vth t'e reductch ri the tedera: ncorre tar ra's under 1 e Tas Re+orm kt of 19% ee:tre opereng revenues reiwe re.enu es s brect to re+se 3 accreama'e) 1163 3';3 030 for the year 1967 See we 3 or 'etes to Fnanc4a)

Sta'e ea's er reaton re.a'ed to tSe roer (3) Tre 19N eeetc ope s'n; revevs ke a*/ cur saes a%3 cutterier ne e restated to re9ect a ree'assta'on t om s*4u comyc4 ans roas*,w to irge commerce' F 4 ni;st'4' 16

Report of Management The management of tne Company has prepared and is preparing fmancial information in conformity with generally responsible for the consolidated 6nancial statements and the accepted accounting principles. The concept of reasonable related 6nancial data contained in this annual report. in its assurance is based on the recognition that the cost of a sy stem opinion, the statements bas e been prepared in conformity ofinternal accounting control must be related to the benents with generally accepted accounting principles. derived. The balancing of those factors requires estimates and judgment.

The Compa.')'s 6nancial statements base been audited by Arthur Andersen & Co., independent public accountants. The Coard of Directors carries out its responsibility for the anpros ed by the shareholders. The report of Arthur Andersen 6nancial statements and the related 6 nancial data through its

& Co. on the Company's fmancial statements is quali6ed Audit Committee, which is composed solely of outside with respect to certain matters as described in their report directors. The Audit Committee meets periodically with appearing on page 3S. Management has made available to management, the internal auditor, and independent public Arthur Andersen & Co. all the Company's 6nancial records accountants to ensure that each is carrying out its and related data, as well as the minutes of stocinolders' and responsibilities, and to discuss auditing, internal accounting Directors' meetings. Furthermore, mans;ement belies es that control, and 6nancial reporting matters. Both the internal all representations made to Arthur Andersen & Co. during auditor and the independent public accountants hase free their audit were vahd and appropriate. access to the Audit Committee, with and without management present, to discuss the results of their audit To meet its respnsibilities for the reliability of the 6nancial work, the adequacy ofinternal accounting control and their statements and the related 6nancial data, the Company opinions on other fmancial matters.

maintains a s) stem ofinternal accounting control and supports a program ofinternal audits, in order to assure that the sy stem is adequately designed and documented and that it is functioning as designed, the Company routinely reviews j [ g-ppy _ g its system ofinternal accounting control. It is management's opinion that the system is adequate to proside reasonab!e James J. O'Connor Wallace B. Behnke, Jr, assurance that assets are safeguarded from loss or Chairman Vice Chairman unauthorized use and that 6nancial records are reliable for 17 f

l _ _ _ _ _ _

TJ the Audit Committee of the Board of Directors of Commonwealth Edison Company:

We base made a study and evaluation of the sptem of liccause ofinherent limitations in any sptem ofinternal internal accounting control of Commonwcalth Edison accounting control, errors or irregularities may occur and not Company and subsidiary companies in effect at December be detected. Also, projection of an) esaluation of the system 31,1987. Our study and evaluation was conducted in to future periods is subject to the risk that procedures may accordance with st:,ndards established by the American become inadequate because of changes in c anditions, or that Institute of Certi6ed Public Accountants. the degree of compliance with the procedures may deteriorate.

The management of Commonwealth Edison Company is responsible for establishing and maintaining a system of in our opinion, the sptem ofinternal accounting control of internal accounting control. In ful6l ling this responsibility, Commonwealth Edison Company and subsidiary companies estimates and judgments by management are required to in etTect at December 31,1987, taken as a whole, was assess the expected benefits and related costs of control sufficient to meet the objectis es stated abose insofar as those procedures. The objectives ofa sy stem ofinternal accounting objectives pertain to the prevention or detection of errors or control are to proside management with reasonaHe irregularities in amounts that w ould be materialin relation to assurance that assets are safeguarded against loss from the consolidated 6nancial statements.

unauthorized use or disposition and that transactions are executed in accordance with management's authorization and recorded properly to permit the preparation of 6nancial statements in accordance with generally accepted accounting principles.

[h [gg y [.

Chicago, Illinois Februar) 5,1988 16

Statements of Consolldated income c<mn.es Edyn Cney at sut46ay ccmpen.cs (thiaNs et;ept per sha'e da'a) 1987 1966 19s5 Electric opeteting revenues @te 3) SS 473,782 88,478,611 84,964,161 Electric operativ1 espenses and toses:

Fuet (Notes 1,3 and '1) $1.177.312 $1.318.888 $1205.784 Purchased and inte< changed ;c*e< - net 118.156 89 604 195.934 Mened (unde)/csenecmered energy costs - net (Notes 1 and 3) 90.672 611.46 (29,464)

Cperaton 863 203 809 339 858.452 Ma:ntenance 341.846 310.586 337.462 Deptecaten (Notes 1 and 3) 652 201 556 695 455 964:

Ant:rtzaton of defened reten - rate phasee plan (Nete 3) 27,368 - -

Taies (except rcome)(Note 15) 628 937 577.995 586.832 Irtcome taxes (Notes 1 ard 14)-

Current - Federat 193X12 213.045 154.948

- State 71.203 69.997 36.071 De'ered - Federal - net 118 235 140.478 205.313

- State - net 24 827 26.461 31238

ntostment tai crects de!e vd - net (Note: 1 and 14) 170,122 220.899 53,152

$4.477.387 $4,395.553 $4,097.686 Electric operating income 81,196,30s $1,083,968 4 ses,4ss Other income end deductions:

incest on long term oeet $ (660066) $ (673922) $ (631,377)

InDest on notes pas ade (18.141) (23.157) (24.390)

Alk,*ance far tums used Osn; constructon potes 1 and 3) -

Barrowed funcs 134.197 142203 157.961 EqArfunds 362334 38) 443 436,089 Wened teten-< ate phase ri plan Pete 3) 3107 42.975 6 765 Cerent reorr.e tai crests apsease to noncseratrg actmtes (Nates 1 and 14) 96.597 139 816 150.576 M.scenaneous - net (29242) (41121) (6 353)

$ (110,616) $ (33.363) $ 89271 Not laceme Nte 3) 81,486,779 81,446,906 8 946,738 Prowlelen for dividends en preferred and peeforence stocks 108,138 114,444 114,111 Not income on common stock 8 977,441 4 333,941 3 333,43s Average number of commen theres evtstanding 308,833 106,938 108,744 Esenings per common share (Note 3) k?3 $4,00 R4S Cash dividends declocod pee commen share 83.00 $8.00 83.40 Tto wrepng Wes to Frianc.aJ Strements e<e an rdegral pn1 of tre above sta! rents ( ) edca'es dedxta:n 19

. . _ _ _ _ - - J

Consolidated Balanc ,.ieets (twsaNs of ans) Csemte 31 1967 1966 AaseIa Ute44ty Meat tWe41,2. 3. 4. 9.16 and t8) .

Rant and ungenent at ongnal cost (ncludes casinacten *M e progress of

$2fA2 Won at $6294 rrencrt rescectrvey) $22.348250 $20.894.430

. Less- Accevcated provson for ceprecate ~ 4 582,140 4.021.838l

$17166.110 $16.872.592 Nuc! ear f4 at amortmed cest 909.400 034.165.

iI3675516 $17,806J57 Less-Accureated octe"ed ecome taies (Nete 14) 2.115.621 1.fA3.310.

$16.559.895 $15.823.447 :

Investments (Note 17).

51shes not consolda'ed(Note 1) $ 106.960 $ 127,558 Other inrest.~ents. at cost 119.354 .118 355'

$ 226,314 $ 245 913 Cwront Assets:

Cas5 (Note 10) $ 36 057 5 4523

. Tempora y cash castments. at cost wNch argenmates manet 102,873 6.540 Special oe;es ts 22156 8.829 Rece%&ble t-Customers 459 504 407.299 {

Otner 26898 32.462 Prcosen for tit #cctible accounts (11.520) (14200)

Coa' and fel ca at everage cost 266 220 429113 Matena's au sspies at a<crage cost 245.957 195J52 Presaymeris and ether 36 924 36385

$ 1,185.669 $ 1.148 583 Deferred Charges:

Unamortced interest on sper,t rt>cica' fwl asposat fee (hates 1 and 11) $ 27220 $ . 51.678 Ra'e phase e plan (Ncte 3)

Other 26.079 t4740 139.316 85 807

$ t92.615 8 187285 81t,164,403 81F,405,238 The re:mp m; Petes to Frsu Stre ests a o e ritegre' Mr1 of ee above strev.ts ( )hacam oedxton.

l 20

Co vvata th Eou Cunney at S*soarrCo w es (thousands el ck%1's) Decetter 31, 1967 1966 Llabilities

• W h (see 4 xompamvg statements)

Comrnon stxk eesty 8 7.018.485 $ 6.406.973.

Pre' erred at preference stocks without mandatory redempton reo.arements 446,922 448J69 Preference stock subr e ct to mandatory rederrpton requerv.ts 628 551 716131

- Long term debt 6.342.667 6.425 177.

$14.436.815 $13.998250 Current Liebinties:

Notes paya (Ncte 10)-

Commerca' pager 8 -

$ 93.000 Bankloam 2J00 2.400

' Current pyton of iong-term debt. redeemable preference stock and captaued lease obigstuns $63.115 346,557 Accotnts paysbie 361J37 474148 ~

Accrutd riterest 188J55 207,168

' Acc.sed taxes 236.930 257 2 Dwendspar atae 164218 180.645 Customer deposes 46 bl 45,003 Deferred metreo,,vered energy costs (Notes 1.t 3) 96 073 5,401' Other 123J30 54.018 8 1.833.854 $ 1.686.320 Other Noncierrent Lle64pties:

Accrued spent nuclear fuel d sposa! fee and related eterest (Note 11) $ 393,943 $ 372,118 Obhgatons under captalleases (Note 16) 410.026 474.094' Omer - 129151 104.428 8 933120 $ 960 640 Accumulated Defeered investneont Yes Credits (Notes 1 and 14) $ 960,104 $ 790.018 Comentments and Contingent Liabilities (Note 19) -

$18,104,488 S17,408,300 Pe acco wys ies w u Frwow swems e e an otegre part or the m evemets 21 l

t

Statements of Consolidated Capitalisation cw.r.e ro.#cmym ye satem cmws (thousaMs of Of#s) DeCemW 31 h*3I IM Common st**k etuky (Wes 5 rd 6)

Common sixk. $1250 par va've per Shre -

Outstandog 210 965 750 s@es s'id M2.746.115 Sha'es. resrectr<e4y $2.61732 52.534.3 3 l Premeum on common stock ard otter pad o captat 2.1761N 2 024151 l Captal stock and eartant en. cense l (17.60?) (1?.999)

Retaned eunngs 2 222.038 1.6%394 0 7,418,406 8 6,438,973 Preferred and preference steeks without :-::::ri c:f:r; ':-

requirements (%tes 5 rd 7)

Preferecce stxk. cumutatrve. witreut par i au -

Outstanoog - 10 4R$49 shares 4 432.33 ' 1 432,320

$ 1425 convertde ne'ene t sixk. cumutatue. *.thout par vaw .

Outsta9ng 459206 shres r4 $17.262 shres. resrectuey 14.002 13 449 Prcnr pre'ened stock. cumutaMe, $1C0 par vah;e per share no shar es outstandng - -

8 a44 ett 8 4 4,788 Preference steek subject to mandatory redemptlen requiremente (Wes 5 and 8)

Preference $txk. cumstatve. *sthout par value -

Outstawng 9 029 456 shres rid 10 326 005 shares, respectr.Jr $ 663.4M $ 746,755 Cunent rece ston reprements for preference stxk rcuded n current 14tAtes t%.(,74)

(34 853) 8 428,M 1 8 714,731 Long-term debt Pete 9)

Frst tratgage bords Mateng IM7 theough 1%2 3% to 17% $ 9M W f $40.000 Maturng 1933 t'rcugh 2002 5 A to 14% 1.11L000 975.000 Maturng 2003 through 2012 6% to 13% 1.470.000 1.570 000 Maturng M13 tFraugh 2017 9% to 13W 1.419 650 1.161.E

$4 9tM 650 $4 646.000 DebentJes, dJe Mrch 15,19b7

• 14 % - 125h30 Scwng turd detentees due 1%6 t* rough M11 2% to 15% 925 451 989 439 Pc5utre control cd ;atons. due 2000 thrxgh 2014 5% to 11% 453 200 45320)

Othev (proc $#y bngter") notes) 465 439 416 579 Current matsees of ksy ** detd n>Jded n current katsktes (360.033) (160 031)

Unatotaa ret oebt crscount ud gemum (%te 1) (45.8 3 : 444 410) 0 0,342,447 8 6.428,777 i

814,438,41e 813,006.2to N av r4,,es to Frw.s smets we as rmye part ce ew anm m-.ra ( )hwiwwe 22

State #nents of Coneolidated Changes in Financial Position cwme Esm cawy rd satose caroran I

(t.wssMs cf octrs) %47 19M 1%5 Fundo peevided by:

Ctstent occatens -

het oce/ne $1,MS.779 $1.049.595 $ 955.736 Desecate aN acnorus+on 743 360 640.0G6 541,997 DVened incyre tases and esesNt tan croits . r4t 002.446 374 833 299,773 Egaty comoetent of awance for bods Lsed d'. tog constructe (362.334) (35).443) (436 089)

Pn>+cn to te tu refunos 70.019 - -

Ty%c- tre r eer4 a cian 3 707) (42.975) (6.765)

< fotaw threa MtJn rate rJase-n plan 27,368 - -

( r em w Wr4 net 27,5(6 21120 305 t.@ tre ed r, terr.ah $1,fEO.&D $1.666226 $1,354,957 iss an <4 nmies-L% 1ett t315.413 iNA70) 2 3.582 Captal stcrA 255.043 23$537 . 540 % 4 Sa c4 nuckat 8W 155 422 258 $43 "43344) ttrease (Decrease) n sWi lerm borro**$a (92 700) (216.600) 21,100

$4,124,417 $8,998,711 82,944,St 1 Punds appHed tx Conttructon esperdtas $1.432 000 $1.824205 $1.834 646 Nwest h;$l egerdrses 197 2 % 174 511 250.718 Eqatt egrent of wha c %rds used orng constructon (362.334) (3M 443) (436.089) l

$1267.032 $1.6t8.273 $1649.275 0491 drideNs declared on cap ta! stock 731135 715.339 693317 Retnewt at rece ipton J tm.is aM oebentwes for cash 8X443 563f4 170.361 R:tre ent c4 nong te ci notes 100 00) 100.0]O 100 03)

Peceemeo or texQved grefuence stock 83 351 34 911 21.443 Termt.aten d a nuclear fuel kase - -

251.432 increase (DS:rease) n rwestment n coal reser<es 96 750 (560) (4.041) prewum pad on redempton of krqterm debt 31.675 17 883 -

Increase (Decrease) ri *M og captal (other t%9 short te m tcrrowngs, current porton of krr,r

'erm debt redeemaNe pre'erence stock aM captaued lease obbgatms at prorson tur reveu ret.rds) 93.429 (E4287) 66 437 Other items net 17,165 (32.458) (4.983) 83,294,017 88.004,711 88,944,311 N eccomrws vn tenece Stre enes we e rae7W pen or tv above raws ( )rowes oewen 23

]

Statements of Consolidated Retained Earnings Oom ea Edson Company aN Suts Gary Carpames e

(thousands of dolta s) 1987 1986 1985 Balance at begi. ming of year $1.866,394 $1,532,108 $1,266,689 Net income 1,085,779 1,049.595 955,736

$2,952,173 $2.581.703 $2,222,425 -

Deduct Cash dn,dends declared on -

Comrnon stock $ 622,880 $ 598,959 $ 574,129

. Preferred at preference stocks 107,255 116,350 116.188

$ 730,135 $ 715.309 $ 690,317 Balance at end of year $2,222,038 $1,866,394 $1,532,108 Statements of Consolidated Premium Com.craea m Ed son Ccepany on Common Stock and Other Pald in Capital and Sasd ary Companes (thousands of do!!ars) 1967 1986 1985 Balance at beginning of year $2.024.251 $1,886.265 $1,607,553 Add Premium on issuance of common stock and gain on reacqtsred preference stock 152.508 138.041 278.760

$2,176,759 $2.024,306 $1,886,313 Deduct Trans'er to common stock account upon exere:sc of warrants 27 55 48 Balar.co at end of year $2.178,732 $2,024,251 $1,886,265 The a,~xcoryng Notes to Fece STements are sa rteyal pad of the abon swements 24

Notes to Financial Statements - commonwea'th Edson Company and subsery con panies

-(1) Summary of Significant Accounting Policies While the eventual cost of retiring a nuclear generating unit is Princip/cs ofConsolidation. The consolidated fmancial uncertair. at the present time, the composite depreciation statements include the accounts of Commonwealth Edison rates include allowances for both interim chemi cal cleaning L Company (the Company) and its wholly-owned subsidiary, and end-oflife decommissioning.

l, Commonwealth Edison Company ofIndiana, Inc., the ontv subsidiary engaged in the electric utility business. All Amortization ofNuc/ car Fuel. The cost of nuclear fuel is significant intercompany transactions have been eliminated. amortized to fuel expense based on the quantity of heat I

produced using the unit ofproduction method. As authorized Individual financial statements of the Company have been by the Illinois Commerce Commission (ICC), provisions for omitted because the Company is primarily an operating spent nuclear fuel disposal costs are recorded at a rate of two company and the subsidiary included in the consolidated mills per kilowatthour of net nuclear generation which financial statements is totally-held. Financial statements of includes the fee payable on current nuclear generation and the Co pany's nonconsolidated subsidiaries have been the balance for recovery oithe one-time fee for disposal of '

omitted because, considered in the aggregate, they would not spent nuclear fuel, and related interest, applicable to nuclear constitute a significant subsidiary. generation prior to April 7,1983. See Note 11 for further information concerning the disposal of spent nuclear fuel.

Investments in Subsidiaries not Consolidated. The Nuclear fuel expenses, including leased fuel costs and investments in subsidiaries not consolidated are accounted provisions for spent nuclear fuel dispost costs, for the years for in accordance with the equity method of accounting. At 1987,1986 and 1985 were $356,116,000, $324,943,000 and December 31,1987,1986 and 1985, retained earr,ings include $291,159,000, respectively.

$(1,932,000), $7,973,000 and $20,904,000, respectively, of undistributed earnings (losses) of subsidiaries not incomt Taxes. Deferred income taxes are provided for consolidated. The equity in earnings (losses) of subsidiaries significant income and expense items recognized for fmancial not consolidated, which is included in miscellaneous other accounting purposes in periods that differ from those for income and deductions, for the years 1987,1986 and 1985 income tax purposes. Income taxes deferred in prior years are was $4,498,000, $(8,431,000) and $6,413,000, respectively. charged or credited to income as the book / tax timing i

The Company's investmt it in its uranium subsidiary at differences reverse.

December 31,1987 includes approximately $2,355,000, I

representing the unamortized portion of the purchase cost Investment tax credits utilized are deferred for fmancial l attributable to uranium ore reserves after taking account of accounting purposes and amortized through credits to l the estimated net value of the subsidiary's other assets at the income generally over the lives of the related property, date of acquisition. This amount is being amortized on the basis of uranium concentrate produced from the reserves. Provisions for deferrals of construction related income tax benefits (e.g. accelerated cost recovery and liberalized Depreciation. Depreciation is provided on the straight-line depreciation) reflect consumption of the plant and equipment basis by amortizing the cost of depreciable plant and to which they relate. Consequently, they are similar to equipment over estimated composite service lives. Such depreciation provisions, and the related accumulated

- provisions for depreciation were at average annual rates of deferred income taxes,like the accumulated provision for 4.08%,4.03% and 3.96% of average depreciable utility plant depreciation, is a valuation reserve deducted from plant and equipment for the years 1987,1986 and 1985, investment in arriving at the rate base used in ratemaking respectively. Depreciation on Byron Unit 1, placed in senice proceedings.

in April 1985, did not commence until electric senice rates relating to the inclusion of the unit in rate base became Income tax credits resulting from interest charges applicable etT,:ctive on October 29,1985. :o nonoperating activities, principally construction, are classified as otherincome.

25 {

l l

See Notes 3 and 14 and "Management's Discussion and 2 and Braidwood Unit I were placed in service on April 11.

Analysis of Financial Condition and Results of Operations," 1987 and November 19,1987, respectively, and Braidwood subcaption "Liquidity and Capital Resources" "Federal Unit 2 is expected to be placed in service in mid-1988. The Tax Changes," for additional information relating to income Company estimates that placing Byron Unit 2 and taxes including the new accounting standard w hich requires Braidwood Unit 1 in service decreases net earnings by the Company to use an asset and liability approach for approximately 10 cents and 15 cents per share per month, fmancial accounting and reporting for income taxes. respectively, On April 7,1987, the Company filed a petition with the ICC requesting authority, with respect to each of Allowancefor Funds Used During Construction (.-f FUDC). In thwwo units, to record and capitaliie carrying charges a nd accordance with uniform systems of accounts prescribed by c:fer the recording of depreciation from the date each unit is regulatory au:horities, the Company capitalizes AFUDC, pled in senice until new rates reflecting the costs of each compounded semi-annually, which represents the estimated unit become eEcctive. Various grcaps have intervened in the cost of funds used to fmance the construction program. The proceeding and have asked the ICC to dismiss the petition.

equity component of AFUDC is recorded on an after-tax The Company has suggested to the ICC that it defer any basis. For projects on which construction commenced prior rulings on the petition rather than dismiss it. On February 2, to 1983, the borrowed funds component of AFUDC was 1988, the Hearing Examiner in the proceeding issued a recorded on a net of tax basis. For projects on which proposed orr:er which calls for dismissal of the petition construction commenced after 1982, the borrowed funds without prejudice. The proposed order states that no decision component of AFUDC was recorded on a pre-tax basis. has been made as to the facts or merits of the petition by entry of the order. The Company will file exceptions to the The amounts of AFUDC capitalized and the average annual proposed order, rates for 1987,1986 and 1985 were as follows:

1937 1986 1985 Debt Discount, Premium and Expense. Discount, premium For Projects c1 whch Cons e h e lives f the respective issues.

Pvar to 1983 AFuDC Deferred Recoscry ofEnergy Costs. Tbe uniform fuel Cotahzed On thousands) 5466.977 $485.973 $570624 ad;ustment clause adopted by the ICC provides for the Average Annua! Rate , 10 08 % 9 78 % 10 06 % recovery of changes in fossil and nuclear fuel costs and the g energy portion of purchased power costs as compared to the ANDC fuel and purchased energy costs included in base rates. As Captahzed On thousands) 129.554 $36673 $23A26 authorized by the ICC, the Company has recorded under or Average Annual Rate . 12.14 % 12 29 % 12 63% overrecoveries of allowable fuel and energy costs which, under the clause, are recoverable or refundable in subsequent For additional information regarding AFUDC, see "Other months. See Note 2 for information relating to the annual items" under the subcaption "Results of Operations"in reconciliation proceedings held by the ICC with respect to the "Management's Discussion and Analysis of Financial Company's fuel and power purchases.

Condition and Results ofOperations" and Note 14. Pursuant to authorization of the ICC, the Company continued to (2) Plan Regarding Nuclear Plant Construction Program and Rates capitalize AFUDC on Byron Unit 1, and postponed commencement of depreciatior, on the unit from Apnl 22. On February 3,1987, the Company, the Governor ofIllinois and certain other governmental officials and indostrial 1985, the in senice date, until electric service rates reflecting the inclusion of the unit in rate base became effective on customers entered into a Memorandum of Understanding October 29,1985. The amounts of additional AFUDC and (the Plan) intended to resolve uncertainties concermng three postponed depreciation were $117.8 million and $47.4 of the Company's nucleargenerating units (Byron Unit 2 and million, respectively. Under the October 19S5 rate order Braidwood Units 1 and 2) and the level of the Company's these amounts are being recovered in electric service rates electric rates. The Plan provided, among other :hings, for a over the remaining senice life of the umt. rate increase of approximately $660 million on an annual buis followed by a five year moratorium on rate increases.

Under normal accounting treatment, at the time a generating en an oduon M M, mekchg tWam unit is placed in senice AFUDC is discontinued and depreciation commences with respect to the unit. By ron Un.t (3) Rate Mattm In its rate order issued October 24,1985, as amended, the ICC authorized increased electric riles for the Company w hich treame effective on October 29,1985. These new rates l

26

are designed to increase operating revenues by $494.8 directed the ICC to order new rates for the Company within million, or i 1.0%, on an annualized basis, excluding add-on 30 days.1 he Circuit Court ordered that the new rates exclude revenue taxes, based on sales estimates for the year ended the approximately $2.22 billion incorporated in the December 31,19S4 used in the rate proceeding. Collection of Company's rate base related to Byron Unit I and, a cortion of the additional revenues authorized in the accordingly,"rollback," on a prospective basis, the $494.8 October 24,1985 order of the ICC, as amended, was defened million rate increase of October 1985. The Circuit Court pursuant to a phase-in plan w hich postponed, with respect to concluded that the ICC's decision did not comply with residential customers, recovery of return on a portion of applicable legal requirements, including the provision of the By ron Unit I costs through December 31,1986. The phase-in Illinois Public Utilities Act which requires the ICC to plan provides for an initial increase in rates, which became conduct an audit prior to including a new generating plant in effective on October 29,1985, designed to increase annual a utility's rate base. The Circuit Court concluded that the uprating revenues by $413.7 million and for an additional audit of Byron Unit I performed for the ICC did not meet increase in rates, which became effective January 1,1987, the statutory standards and, in addition, that the ICC's designed to increase annual operating revenues by $136.2 considerations and determinations as to whether or not million. The additional increace reflected in rates a full return certain of the costs of Byron Unit I should be included in on the postponed portion of Byron Unit I costs and the rate base were incorrect in certain respects. The Circuit Court l recovery oser a two-year period of the previously deferred ordered that such defects be corrected by the ICC in the l return and associated carrying charges. Under the phase.in conduct offurther proceedings relating to Byron Unit 1 plant plan, rates designed to decrease an nual operating revenues by coste and in ordering future rates for the Company which approximately $55.1 million are to become effective January incorporate Byron Unit 1 plant costs. The Circuit Court 1,1989, to reflect completion of the recovery of the deferred state.1 that the ICC disallowance of retu n on and amounts. The Company recorded the amount of return depreciation of $101.5 millior of Byron Unit I costs deferred for periods prior to January 1,1987, and associated associated with a licensing delay related to the Company's carrying charges, as a deferred charge on the consolidated quality assurance program at Byron Unit I should have been balance sheets and as other income in the statements of $203 million and that only a portion of the Byron station consolidated income. The capitalized amounts are being common plant of $675 million (estimated by the Company to amortized over the two-year recovery period that began be approximately $800 million), rather than all ofsuch costs.

January 1,1987. The Company records the amortization of should be included in rate base with Byron Unit 1.

the deferred return and associated carrying charges as an electric operating expense in the statements of conso'.idated On May 16,1986, the Circuit Court entered an order which, income. among other things, stayed the Circuit Court Order pending appeal by the Company. The May 16 order requires the

, See Note 4 for information concerning the accounting Company to "create a separate account on its books to reflect l standard which requires allowab;e costs deferred for future the difference between the revenues collected by Edison

! recovery under a phase-in plan to be capitalized if specific subsequent to April 29,1986 and the amounts which would l criteria are met. The Byron Unit i phase in plan discussed have been collected under rates without Byron 1 included in l above meets such criteria. The October 19S5 rate order of the rate base." The May 16 order provides that if the Circuit ICC requires that the Company file, either as part ofits next Cou rt Order is affirmed the Company shall pay refunds to its general rate filing er as a separate petition, proposals for customers in an aggregate amount equal to the amount phasing into rues its investment in Byron Unit 2 and recorded in the separate account required by the order, plus Braidsvood Units I and 2. interest. The May 16 order also provides that if the Circuit Court Order is affirmed in part and reversed in part the Pursuant to lilinois law, an audit of the construction Company shall pay refunds to its customers, plus interest, in expnditures and management practices at the Byron station amounts to be determined by the Circuit Court. The was conducted by an independent party and was introduced Company appealed the Circuit Court Order to the Illinois as evidence in the proceeding in connection with the Supreme Court.

Company's October 1985 rate increase. In its related rate order, the ICC disallowed return and depreciation on $101.5 On June 16,1987, the Illinois Supreme Court issued its million of Byron Unit I costs. decision affirming in part and reversing in part the Circuit Court Order and remanding the case to the ICC to conduct The Illinois Attorney General and other parties appealed the further ratemaking proceedings consistent with the decision.

ICC's October 1985 rate order to the Circuit Court of Cook The Supreme Court concluded that the ICC,in determining County, Illinois (Circuit Court). On April 29,1986 the which costs of Byron Unit I should be included in the Circuit Court entered an order (Circuit Court Order) Company's rate base, improperly relied upon a presumption reversing the October 1985 rate order of the ICC. The Circuit of the reasonableness of such costs and used an improper Court Order remanded the rate proceeding to the ICC and 27

standard against which to measure the adequacy of the audit financial statements. The following table summarizes the of that unit required by the Illinois Public Utilities Act. The approximate effect of adopting the accounting standard and Supreme Court further concluded that the Circuit Court recognizing the Byron Unit I disallowed cos;s on the exceeded its authority in directing the ICC to exclude certain Company's statements of consolidated income ss presented Byron station common plant costs in the costs of Byron Unit in this annual report.

I and to exclude the costs of a licensing delay related to the (thousands of collarsi 1987 1986 1985 Companfs quality assurance program at Byron Unit 1. As to the costs associated with the licensing delay, the Supreme Ne' umne $1.086.000 $1.050.000 $956,000 E t1 Court held that the ICCs determination to include half of

, , 9, such costs in rate base w as arbitrary and not supported by the related income taxes 4.000 6.000 (94.000) evidence. On remand. the lCC is to:(i) identify the standards applicable to the audit and determine from the evidence Net presented or from further evidence whether the audit met 9 000 M 00 those standards and (ii) determine whether the record (per share) contains sufficient evidence to establish that the costs of Eamings per common Byron Unit 1 are reasonable (including the costs of such share $4 73 $4 69 $4 45 licensing delay) or require the presentation of such further Effect of Byron Unit 1 evidence as may be necessary for it to make such a d'sarlowed costs net of determination. rew une taes. 0 02 0 03 (0 50)

Eamings per common The Supreme Court's decision does not require a rollback of share a'ter adopton of rates, and the Companfs current rates uill remain in effect accountog standard $4 75 -

$4 72 53 95 until further order by the ICC. Ilowever, the Supreme Court stated thot "refunds dating from the Circuit Court's reversal The Com pany will be required to write ofradditional costs,if are allowable. . if the [lCC) on remand determines that the any, that are disallowed by the ICC in its further ratemaking rate base established by the [ICC) in its October 1985 rate proceedings following the Supreme Court renand. No order was based upon custs that were unreasonable."

additional portion of the Company's investment in Byron Unit 1 is presently being written offin 1988 because the Electric operating revenues of $590.3 million and $316.3 Company is unable to determine the amount which may million for the > cars 1987 and 1986, respectively, are subject ultimately be disallowed in funher ratemaking proceedings.

to refund under the terms of the May 16 order of the Circuit Court and the Illinois Supreme Court decision. The amount For additionalinformation concerning the foregoing matters, of deferred return and associated carrying charg< s. net of see Note 4.

amortization, recorded pursuant to the phase in plan for the y ears 1987,1986 and 1985 w as $(23,7) million. 543.0 million The Illinois Public Utilities Act requires the ICC to hold and $6.8 million, respectively. The balance of the deferred annual public hearings to determine whether each utility's return and associated carrying charges not yet amortized of fuel adjustment clause reflects actual costs of fuel and power

$26.1 million at December 31,1987 may not be recoverable prudently purchased and to reconcile amounts collected with depending upor, the outcome of the remand ofthe case to the actual costs. Pursuant to this requirement, the ICC has ICC. The Company cannot predict the outcome of the ICC conducted reconciliation proceedings with respect to the proceedings on remand.

Company's 1983 fuel and purchased power costs. On October 7,1987, the ICC approved an order in the The Company believes. however, that it would be proceeding which requires the Company to refund to its unreasonable to anticipate that rate reliefultimately obtained customers approximately $70 million plus interest from the will be msulhcient to provide for at least the recosery ofits date of the order. The order specifies that the refund be made investment in Byron Unit I, together with related interest by adjustments to the Company's rates through its fuel costs, and therefore believes that no material write off ofits adjustment clause over a one year period from the date of the investment in Byron Unit 1 is currently required. However, order. The order resulted in a one-time reduction in earnings the Financial Accounting Standards Board (FASB) has of 20 cents per share, recorded in September 1987. ,

adopted an accounting stanjard w hich requires the Company The Company has appealed the ICC order to the Illinois to write off any plant costs, net of the income tax effects.

Appellate Court, which has stayed the effectiveness of the when it becomes probable that such plant costs will be ICCs order pending the Court's consideration of the appeal.

disallowed for ratemaking purposes. Accordingly,in January Reconciliation proceedings are also being held with respect to 1988, the Company adopted the standard and recognized a the Company's fuel and power purchases for each of the years net loss related to $101.5 million of Byron Unit I costs subsequent to 1983.

disallowed by the ICC through a restatement of prior years' 28

- The Citiz:ns Utility Board has filed a petition with the ICC units under construction and ordered that the proceeding be seeking a reduction in the Company's rates that w ould reduce reopened for further hearings and evidence following such its annual revenue by at least $400 million due to an alleged reexamination. The ICC also ordered the Company to record decrease in the cost of equity and the lowering of the federal separately costs for Braidwood station incurred after corporateincome tax rate under the Tax Reform Act ofl986 November 30,1985, and stated that, in the event the ICC (the Act), ultimately determines that Braidwood station be cancelled, there would be a strong presumption that the Company On Nosember 4,1987, the ICC approved a rider to the would not be allowed to recover such costs. Costs incurred Company's rate schedules stating the percentage of revenues for the Braidwood station through December 31,1987 were which represents the difference between revenues billed $4.92 billion, of which $1.84 billion was incurred after under rates then in effect pursuant to the Company's most November 30,1955. Economic studies presented by the recent rate order and revenues that would have been billed Company in the procceaing showed that completion of had the federal income tax component ofits cost of ser ice Braidwood station would result in signi6 cant savings as l been based on a 34% federal income tax rate effective July 1, compared to cancellation.

I 198L The rider was Sled in connection with requests by the staffof the ICC for the 61ing by the Company ofa rider to its On July 2,1986, the ICC entered a 6nal order in this rates with respect to changes under the Act. Pursuant to the proceeding, and a second, related order opening a further rider (as amer ded), effective as ofj uly l,1987, the Com pany proceeding (together, tha 1986 0rder). The 1986 0rder is recording in "revenue accounts subject to refund" such denied requests that the ICC enter an order revoking the percentage ofits revenues (5.54% or approximately $210 Certi6cate of Public Convenience and Necessity which had million on an annual basis). The Company will continue to authorized construction of the station or that it otherwise record such amounts until the ICC has made a review of the require the Company to cancel construction of the station, impact of the Act on the Company's cost of service. Upoa but the ICC did not determine that the station should be completion of such review, the Commission will determine completed. The ICC, noting that the evidence considered by how the Company's rates should be changed to reflect this it in the proceeding was addressed to cancelling or impact, and enter an order accordingly. At such time as the completing the Braidwood station as a whole and did not review is complete, ifit is determined that a rate decrease is include separate evaluations of the effects of cancelling or proper, any excessive collections in the "revenue accounts completing each unit, concluded, among other things, that it subject to refu nd" will be refundable to customers along with should conduct a comprehensive evaluation of each interest calculated at the rate being used for interest paid on Braidwood unit individually. The 1986 Order states that customerdeposits The riderdoes not resultin any reduction "The ((CC] cautions the Company that the Order in this in the Company's revenues or net iacome except in the event docket does not imply approval or disappreval of of such a determination. Electric operating rever.aes of construction of Braidwood Unit 1." The 1986 Order also approsimately $163,003,000 for the year 1987 may be requires that the Company 6te monthly reports concerning required to be refunded to customers pursuant to such rider. the cost and status of construction of the units under The Company bclieves that a refund is not warranted and construction and that the Company continue to record that it is unreasonable to anticipate that the ultimate separately costs for the Braidwood units incurred after resolution of this matter will have a material impact on the November 30,1985.

nnancial statements.

In these Braidwood construction proceedings the Company (4) Braidwood Construction llearingst B)ron Unit 2 and has proposed that the cost of the Braidwood units reflected in Braidwood Units I and 2 Audits of Construction rates not exceed $5.05 billion, subject to increases Expenditures and Management Practices attributable to future regulatory delays. In its 1986 Order the In 1980 and 1982, the ICC determined that the Company ICC appears to have accepted the Company's proposal. The should complete the construction ofits nuclear generating ICC further stated, however, that the cap "creates a strong units, including Braidwood Units I and 2, in as timely and presumption that any costs above the $5.05 billion ceiling or economic a manner as possible. In April 1985, the ICC began the prorated portion for that part of plant completed and evidentiary hearings on the subject of cancelling one or both allowed in rate base, if applicable, will be absorbed by of the Braidwood units. A motion was 61ed by participants in Edison's shareholders." In addition, the 1986 Order states the hearings requesting orders of the ICC requiring thrt that "acceptance of the Company's voluntary cap will m no construction of the Braidwood station be cancelled and way limit this Commission from making further revokir.g the Certi Acate of Public Convenience and Necessity disallowances on the basis of prudency." In December 1987 authorizing the construction of the station, the estimated construction cost of Braidwood station was increased to $5.14 billion to reflect a $93.7 million iacrease In October 1985, the ICC suspended the pmceeding pending which the Company believes is attributable to regulatory completion by the Company ofits announced reexamination delays that affected the service date of Unit 1. Increased costs of the economics of compkting and operating its generating resulting from delays in the service date of Braidwood Unit i 29

have to some extent been offset by acceleration of the The Company cannot predict what determination the ICC estimated ser ice date of Braidwood Unit 2. will ultimately make as to completion of Braidwood Unit 2 and the ratemaking treatment of the Company's investment In the 1986 Order the ICC determined that within 30 day s in the unit. The results of the Company's economie studies to the Company should be required to submit evidence in a new date continue to favor completion of Braidwood Unit 2.

proceeding showing cause why the Certificate of Public Because of the strong case for completion, the Company has Convenience and Necessity for the Braidw ood station should proceeded with construction pending an ICC decision.

not be withdrawn or altered with respect to Unit 2. The ICC (Although the parties submitted briefs in December 1986 instituted a new proceeding and ordered the Company "to addressing the issue cf the propriety of an interim order show cause why the Company's Braidwood Unit 2 should directing the Company to stop construction of Braidwood not be cancelled and the Certificate of Public Convenience Unit 2 pending issuance ofa fmai orderin the proceeding, the and Necessity issued for the Braidw ood station should not be hearing examiner has not responded to the briefs.) In withdraw n or altered." addition, the Company cannot reasonably estimate the amount,ifany, ofits invertment in Braidwood Unit 2 w hich in the new proceeding, the Company filed economic studies may not be recoverable if the ICC were to determine that with the ICC with respect to Braidwood Unit 2, considered Braidwood Unit 2 should be cancelled er not allowed in rate separately, which show that completion of that unit is base. Bect e of these uncertainties, no write otTof the economically preferable to cancellation. These same studies, Company's investment in Braidwaod Unit 2 has been however, w hen altered to incorporate (i) the lower sales and redected in the fmancial statements.

load grow th rate assum ptions preferred by the ICC in its 1986 Order and (ii) an unorthodox method for treating return on Pursuant to Illinois law, audits of the construction unamortized investment proposed by intersenors and exp:nditures and management practices with respect to espoused by the ICCin its 1986 Order (a methodology which Byron Unit 2 and Braidwood Unit 1, which were placed in the Company believes to be contrary to generally accepted service on April i1,1987 and November 19,1987, economic principles)in some cases show levels of savings respectively, are being conducted by independent parties.

, from completion which could be regarded, in the exercise of The Comoany believes that it would be unreasonable to judgment, as too low to dictate a choice between completion anticipate that rate relief ultimately obtained will be and cancellation. Where the 1986 Order's growth rate insufficient to provide for at least the recovery ofits assurnptions and treatment of return on unamortized investment in Byron Unit 2 and Braidwood Unit 1, together ins estment are combined with other factual assamptions with related interest. Accordingly, no write otTof the which the show cause order requested the Company to make Company's insestment in Byron Unit 2 and %idwood for sensitisity purpuses, the results of the Company's Unit I has been reuccted in the fmancial statements.

economic studies can in some cases be resersed. The Company does not know what weight the ICC will gise the In December 1986, the FASB issued an accounting standard studies in any esent. which requires the Company at some future date, not later than January 1988: (i) to write off plant costs, net of the The 1986 Order appears to indicate that, if the ICC were to income tax clTects, when it becomes probable that such plant fmd that a Braidwood unit should be cancelled, it might costs will be disallowed for ratemaking purposes and a disallow recosery in rates of ali costs associated with the reasonable estimate of the amount of the disallowance can be cancelled unit incurred after Nosember 30,1985, and that it made and (ii) with regard to units for which a prudence would, in any esent, disallow, for the period following a investigation is in process or has taken place and a cancellation decision, recoscry of any return on insestment disallowance of costs (including subsequent AFUDC on in the unit. those costs) is probable, to limit the subsequent capitalization of AFUDC to amounts based on the costs ultimately The ICC suspended the new proceedmg pending its expected to be allowed. In January 1988, the Company consideration of the Plan referred to in Note 2. In its order adopted the standard.

rejecting the Plan, the ICC indicated that it will issue a separate order as to the disposition of this proceeding. At Dcccmber 31,1987, the Company had insested $1.91 Construction of Braidwood Unit 2 is sirtually complete, all billion in By ron Unit 2 and $4.92 billion in Braidwood Units major pre-operational tests has e been successfully performed I anci 2. No portion of the Company's investment in Byron and the NRC has authorized the Company to load fuel and Unit 2 and Braidwood Units 1 and 2 is presently being conduct an operational testing program. The unit is expected written otTin 1988 because the Company is unable to to be placed in sersice in mid 19SS. Pursuant to Illineis law, determine the amounts which may ultimately be disallowed an audit of the construction espenditures and management in ratemaking proceedings related to these units. However, practices w ith respect to Braidwood Unit 2 will be conducted the Company may eventually be requireo to write otTa by an independent party. substantial portion ofits insestment in these units, w hich I

would have a material adverse effect on the Company's intervened in the proceeding and have asked the ICC to  ;

Snancial position and results of operations. dismiss the petition. The Company has suggested to the ICC that it defer any rulings on the petition rather than dismiss it.

The Company is continuing to record AFUDC on its On February 2,1988, the Hearing Examiner in the investment in Braidwood Unit 2. Although the Company is proceeding issued a proposed order which calls for dismissal unable to determine the amount ofinvestment in Braidw ood of the petition without prejudice, The proposed order states ,

Unit 2 which may ultimately be disallowed, the amount of that no decision has been made as to the facts or merits of the AFUDC capitalized on such disallowed costs is not expected petition by entry of the order. The Company will file ..

to be material in relation 1o the Company's nnancial position exceptions to the proposed order, and results of operations.

On August 21,1987, the Company 6 led proposed new rates , h On February 26,1986, the Com pany 61ed testimony with the with the ICC designed to increase operating revenues by ICC which, among other things, proposed a rate moderation approximately $14 billion (27%) on an annual basis plan which provi&s for reflecting the costs associated with principally to reflect the costs of Byron Unit 2 and Byron Unit 2 and Braidwood Units 1 and 2 in elestric rates Braidwood Units I and 2.

over a period of time. The ICC's 1986 Order takes no --

position on the Company's rate moderation plan. In the 1986 (5) Authorized Shares and Voting Rights of Capital Stocks At December 31,1987, the authorized shares ofcapital stocks Order the staff of the ICC was instracted to initiate a were: common stock-250,000,000 shares; preference comprehensise investigation of the rate and other impacts of placing By ron l' nit 2 and the Braidw ood cnitsin ser ice and stock-30,689,456 shares; $1.425 convertible preferred to consider the issue of"capacity in excess of a reasonable stock-459,206 shares; and prior preferred stock-850,000 reserve margin" and both traditional and non traditional shares. The prior preferred and preference stocks are issuabl- -

methods of reDecting the units in rates including, without in series and may be issued with or without mandatory limitation, the rate moderat;on plans previously proposed bv redemption requirements. Holders of shares at any time the Company and by various intervenors in this and other' outstanding, regardless of class, are entitled to one vote for proceedings. cach share held on each matter submitted to a vote at a j meeting of stockholders, with the right to cumulate votes in in August 1987, the FASB issued an accounting standard all elections for directors.

w hich requires allowable costs deferred for future recovery under a phase in plan related to electne utthties' plants (6) Common Stock At December 31,1987, shares of common stock were com pleted before January 1,1988 and electric utilities' plants reserved for the following purposes:

on which substantial phy'sical construction has been oerformed before January 1,198S to be capitalized if four Common Stock Reserved criteria are met. Those criteria are: (a) the plan has been Employe Stock Purchase Pian 3.162.570 agreed to by the applicable regulatory authority,(b) the plan Employe Sanng3 and Investment Plan 1.403.704 l

specifies when recovery will occur, (c) all allow able costs Employe Stock OArership Plan 935 687 deferred under the plan are scheduled for recovery within 10 Come oW 425 convemew sm 63%

3 ears of the date when deferrals begin and (d) the percentage 6 02a246 increase in rates scheduled for each future year under the plan is not greater than the percentage increase in rates scheduled for the immediately preceding year. If any of these Shares of common stock, $12.50 par value per share, were criteria is not met, allowable costs deferred under the plan issued as follows:

would not be capitalized. Instead, those costs would be 1987 1986 1985 recognized in the same manner as if there were no phase-in Pudc ofenngs - -

10 000.000 plan. The accounting standard is effective in January 1988 Automatc Dmdend Remestment and applies to existing and future phase in plans. and Stcck Purchase Plan (a) 6.986,804 7,131.165 7.,.,01.4M Employe Stock Purchase Pian 298,413 317,351 420.942 Err o e Saengs and insestment The Company discontinued capitalization of AFUDC on By ron Unit 2 and Braidwood Unit I as of their respective in- Errpicie Stock O Anerst p Plan 760 % 8 353 228 567.249 service dates. On April 7,1987, the Company 6ted a petition Converson of $1425 convert No with the ICC requesting authority, with respect to By ron Unit pre'e-ed stock 59 205 81.398 112 E 2 and Braidwood Unit 1. to record and capitalize carrying Converscn of wanants 2.1E8 4.426 3 8E6 charges and defer the recording ofdepreciatien from the date 8.233 635 8 002,470 18 534.002 cach urit is placed in service until new rates redecting the (a) E?ectve Ja%vy L W no new s* aves a'e issuable under tNs plan costs of each unit become efTectise, Various groups have At December 31,1987 and 1986,164,685 and 171,451 common stock purchase warrants, respectively, were 31 ,

2

outstanding. The warrants entitle the holders to convert such The outstanding shares of the $1.425 convertible preferred warrants into common stock at a conversion rate of one stock are convertible at the option of the holders thereof, at share of common stock for three warrants. any time,into common stock at the rate cf 1,02 shares of -

common stock for each share ofcon,vertible preferred stock, (7) Preferred and Preference Stocks Without Standatory subject to future adjustment. The convertible preferred stock Redemption Requirements may be redeemed by the Company at $42 per share, plus No shares of preferred or preference stocks without accrued and unpeid dividends, if any The involuntary mandatory redemption requirements were issued or liquidation price of the $1.425 convertible preferred stock is redeemed by the Company during 1987,1986 and 1985. The $31,80 per share, plus accrued and unpaid dividends, if any, series of preference stock without mandatory redemption During 1987,1986 and 1985,58,056 shares,79,822 shares requirements outstanding at December 31,1987 are and 109,927 shares, respectively, of the convertible preferred summarized as follows: stock were converted into common stock, Aggregate involuntary Shares Stated Value Redempton Liquidation (8) Preference Stock Subject to Standatory Redemption Senes Outstanding tthousands) Pnce(a) Proe(a) Requirements

$1.90 4 249.549 $106.239 $ 2525 $25.00 g a ,n amo erence sM su@

$2.00 2.000.000 51,560 1 26.04 $2500 to mandatory redemption requirements were issued. During

$1.96 2.000.000 52.440 $ 27.11 $2500 1985,350,000 shares of preference stock subject to

$7 24 750.000 74 30 $101f0 $9912 mandatory redemption requirements were issued. The series

$8 40 750.000 74.175 $101.00 $9890 of preference stock subject to mandatory redemption

$8 38 750 000 73.566 $100.16 $98.09 requirements outstanding at December 31,1987 are 10.499.549 $432.320 summarized as follows:

(a) Per share plus accrued and unpad dmde4s. d any Aggregate Shares Stated va!ue Series Outstand:ng (thousands) Redempton Pnce(a) 12 875 1.433.200 $ 25.986 $26 50 through October 31,1989. and $25 25 therea'ter

$2.375 1.621.814 39.167 $25 75 through October 31,1990, and $25 25 thereafter

$8 20 535.710 53,571 $105 through October 31,1992, $103 through October 31,1997, and $101 thereafter

$8 40 Senes B  % 3.732 55.000 $103ihrough Apnl3).1988 and $101 thereafter

$8 85 600 000 60.000 Non<allable pror to August 1,1988, eacept for sinking fund $105 thiough ,,k;'y 31,1993. $103 thrt.sh July 31,1998. and $101 thereafter

$9 25 1.275.000 127,500 Non<a!!able pror to Au;mt 1.1989, except for siniong fund, $105 through July 31,1994, $103 through July 31,1999, and $101 thereafter

$1170 600 000 58 842 Non-ca'lable poor to November 1,1989, except for s&ng fund, $105 through Cttober 31,19M,

$103 through October 31,1999, and $101 thereafter

$12 75 350.000 34.723 $103 through Juiy 31,1990, and $101 therea'ter

$13 25 500.000 50.000 Non ca,1able pror to November 1,1992. except for solung fund, $103 79 through October 31, 1993. $102 84 through October 31,1994, $10189 through October 31,1995, $100 95 through October 31,1996, and $1CO thereatter

$11125 400.000 39.660 Nontanable poor to November 1,1988, $104 95 through October 31,1989 $103 71 through October 31,1930. $102 47 through October 31,1991: $10124 through October 31,1992, and $100 thereafter

$10875 350.000 34 654 Nontanable pror to November 1,1989 when the enttre seres is required to be redeemed at $100

$13 25 Senes B 400 000 39.616 Non<a"able pror to November 1,1990, $148 42 through Oc'eber 31,1991, $102 N through October 31,1992, $10147 throug? October 31,1993. and $100 thereafter

$9 30 350.000 34 685 Non caMable pror to November 1,1991; $10310 through October 31,1992. $102 07 through October 31,1993 $10103 through October 31,1994 ard $100 thereafter 9.029,456 $663.404

~

(7Per share plus accrued and unpad dudecs. d'ar'y -

32

The annual sinking fund requirements and sinking fund and series of preference stock subject to mandatory redemption involuntary liquidation prices per share of the outstanding requirements are summarized as follows-Sinking Fund involuntary Seres Annual Sinking Fund Requirement Pnce(a) Uguidation Pnce(a)

$2.875 150.000 shares (b) $ 25 $ 24.10

$2375 150.000 shares (b) $ 25 $ 2415

$8 20 35,715 shares $100 $10000

$8 40 Senes B 30.000 shares (b) $100 $ 99326

$8 85 37,500 shares $100 $10000

$925 75.000 shares $100 $10000

$11.70 37.500 sha es(b) $100 $ 9807

$12 75 50.000 shares (b) $100 $ 9921

$1325 50.000 shares beginning in 1988(b)(c) $100 $10000

$11.125 80.000 shares beg:nnog in 1989tb) $100 $ 9915

$10875 350.000 snares in 1989(d) $100 $ 9901

$13 25 Senes B 80000 shares beginning in 1990(b) 1100 $ 99039

$930 70.000 shares begmng in 1991(b) $100 $ 9910 (amer share plus a:crued and unpaa dweends3 any (b) The Company has a non<umutatae cption to c:rease tf e annue sdog fund payment on each srnLng fund requirement date to retire an 8ditional nurnber of srTes, not o excess of the sokog fund reqJirement, at the apphcable feder@tson price (C) The masnum rkJr"ter of shares abed to be redeemed under the fMCurinfatwe option is 101000 shares (d) The entire seres rs required to te redeemed in 1989 Annual remaining sinking fund requirements through 1992 At December 31,1987, the Company had outstanding 6rst on preference stock outstanding at December 31,1987 will mortgage bonds maturing 1938 through 1992 as follows:

aggregate $35,197,000 in 1988, $80,445,000 in 1989, Senes Pnncapal Amount

$ 55,072,000 in 1990, $62,072,000 in 1991 and $ 62,072,000 in 34% due March 1,1988 $ 50.000,000 1992. During 1987,1986 and 1985,1,296,549 shares,555,285 17Wue Number 1,1988 150M000 shares and 347,915 shares, respectively, of prefererice stock subject to mandatory redemption requirements were e 1 990 reacquired to meet sinking fund requirements. 84% due Aprd 15,1990 200.000.000 5% due Juh 1,1990 10.000.000 Sinking fund requirements due within one year are included 12%% due November 15,1991 100.000.000 in current liabilities. 8%% due Apnl15,1992 160.000,000 10%% due October 15.1992 100,000 000 On February i,1987, the Company redeemed all of the $900M000 outstanding shares ofits $15.00 series of preference stock at the applicable redemption price of $100 per share, plus At December 31,1987, the Company had outstanding accrued and unpaid dividends, together with additional sums payable in connection with such redemption, $100,000,000 oflong term notes due July 18,1988 and

$100,000,000 oflong term notes due July 1,1989, at (9)leng-Term Debt prevailing interest rates which averaged 8.68% at December 31,1987, $215,000,000 oflong term notes due on various Sinking fund rea.irements and scheduled maturities

~

dates in November 1991, at fued interest rates w hich average remaining through 1992 for 6rst mortgage bonds and 8.31%, and a $18,925,000 long-term note due June 30,1992 debentures outstanding at December 31,1987, after deducting debentures reacquired for satisfaction of future at a fued interest rate of 9.08%.

sinking fund requirements and annual sinking fund On June 4,1987, the Company redeemed $150,000,000 of requirements for 6rst mortgage bonds to be satisned by First Mortgage 14% Bonds, Series 41, due January 15,1991 available property additions, are summarized as follows:

1988-$ 260,000,000; 1989-$ 161,740,000; and $200,000,000 of First Mortgage 16% Bonds, Series 45, 1990-$3(M,637,000; 1991-$ 174,974.000; and due March 15,1990. On November 24,1987, the Company 1992-$335,800,000. redeemed $100,000,000 of First Mortgage 14% Bonds, Series 46,due August 15,1992 and $100,000,000 of First Mortgage 15% Bonds, Series 47, due August 15,2012.

Long-term debt maturing within one year is included in current liabilities.

33

The Company's outstanding first mortgage bonds are secured unrecovered portion of the ene-time fee and the interest by a lien on substantially all property and franchises, other accrued has been recorded as a deferred charge. The one-time than expressly excepted property, owned by the Company, fee has been recovered and the accrued interest is being recovered through amortization to nuclear fuel expense, as (10) Lines of Credit discussed in Note 1.

The Company has unused bank lines of credit of

$809,800,000 at December 31,1987 Borrowings may be (12) Pension Benefits made under these lines of credit on unsecured notes of the The Company and its consolidated subsidiary (the Company. Of that amount, $459,800,000, substantially all of companies) have non-contributory defined benefit pension which expires September 30,1988, may be borrowed at plans which cover all regular employes. Benefits under these prevailing prime interest rates. The Company maintains cash plans reflect each employe's compensation, years of service balances on deposit to provid: operating funds, to assure and age at retirement. Funding is based upon actuarially availability of such lines of credit and to compensate the determined contributions that take into account the amount banks for other sersices they perform for the Co.npany deductible for income tax purposes and the minimum These bank balances for the Company and its consolidated contribution required under the Employee Retirement subsidiary are maintained at an average level of Income Security Act of 1974, as amended. The December 31, approximately $36,000,000 without formal commitments to 1986 pension disclosures and related data were based upon do so. As demand deposits, these balances may be withdrawn the January 1,1987 actuarial valuation. The December 31, at any time. 1987 disclosures and related data were estimated pending completion of the January 1,1988 actuarial valuation. The Of the unused bank lines of credit, $350,000,000, which plan assets and projected benefit obligations for these plans at expires March 31,1988, also may be borrowed at prevailing D

_ecember 31,1987 and 1986 were as follows:

prime interest rates. Under these lines of credit, the December 31, 1987 1986 Company is obligated to pay commitment fees.

(thousands of dollars) in addition, at December 31,1987 the Company has

$64,624,000 of unused bank lines of credit available in ksted common stocks. U.S. Govemment.

govemment-sponsored corporaton and connection with the nuclear fuel lease agreements discussed agency secuntes and hsted corporate in Note 16. The $700,000,000 maximum amount available obhgations $1.766.000 $1.7431000 under these lines of credit is reduced by the amount of Projected benett obhgation 1.533.000 1,515.000 nuclear fuel lease obligations outstanding under the Plan assets in excess of projected benent agreements. Of these lines of credit, $300,000,000 expires obhgaton S 233.000 $ 228,000 March 22,1991 and $400,000,000 expires December 1,1990, both with options for extensions, upon mutual agreements between the Company and the banks, of one or more one- TM mh M dpim a hk 3h 1987 year periods until March , .009 and December 1,2010, W 198 were $1,257,000,000 and $1,239,000,000, respectively. Borrowings made against these lines of credit respectively, including vested benefits of $1,204,000,000 and

$1,184,000,000, respectively. The assumed Jiscount rates will be at various interest rates.

were 9.0% and 8.5% at December 31,1987 and 1986, (11) Disposal of Spent Nuclear Fuel respectively, and the assumed annual rates ofincrease in Under the Nuclear Waste Policy Act of 1982, the U.S. future compensation levels were 5.0% and 4.75%,

Department of Energy (DOE)is responsible for the ultimate respectively. These rates were used in determining the storage and disposal of spent nuclear fuel removed from pr jected benefit obligations, accumulated benefit obligations nuclear reactors. The Company has a contract with DOE for and vested benefit obligations at the respective dates.

disposal ofspent nuclear fuel w hich requires the Company t pay to DOE a one time fee applicable to nuclear generation Pmvisions for pensions for 1985 and prior years were through April 6,1983 of approximately $277,000,000, with equivalent to actuarial normal costs based on the aggregate interest to date of pay ment, and a fee payable quarterly equal e st method. Beginmng January 1,1986, provisions for pensions were determined under the rules prescribed by to 1 mill per kilowatthour of nuclear generation 1983. The Company has elected to pay the one-time fee, will aller April Statement of Financial 6;, Accounting Standards No. 87, interest, just prior to the first scheduled delivery of spent neluding the use of the projected unit credit actuarial cost nuclear fuel to DOE scheduled to occur not later than method. Provisions for pensions for 1987,1986 and 1985 January 1998. IX)E has stated, howeser, that the delivery were approxima tely $6,000,000, $3,000,000 and $ 63,000,000, schedule may be delayed. The Company has recorded the respectively. Portions of the provisions were charged to liability for the one time fee and the related interest. The e nstruction costs.

34

Reconciliations of the accrued liability for contributions to were $211,520,000 and $233,239,000, respectively, The net the trust funds to the plan assets in excess of the projected assets of the trust fund established for the payment of post-benefit obligation at December 31,1987 and 1986 were as retirement health care benefits at January 1,1987 and 1986 follows: were $98,253,000 and $71,284,000, respectively.

Dacember 31, 1987 1986 (thousands of dollars) (14) Income Taxes Provisions for current and deferred federal and state income Accrued habihty for coninbutons to the trust funds $ (9.000) $ (3.000) taxes and investment tax credits deferred resulted in the Unrecognized transmon amcant 246 000 259.000 Unrecognized net loss (4.000Xa) (28.000Xb) following effective income tax rates for 1987,1986 and 1985:

1987 G86 1985 Plan assets in excess of projected benefit cbrigabon $233,000 $228.000 Pre-tax book income .

ta) Renects changes o assumed annual discount rates trem 8 5% to 9 0% and $199.142 $1.094.275 $1,446.813 l (thousands of dottars) assumed annual rates of ocrease n future compensatm leveis from 4 75% to 38.1 % 33 9 %

E.Tective income tax rate 34 2 %

50% from December 31,1986 to December 31,1967 off set by an actua! return

• Nch has less than the erDected 9 5%)eng term rate of return on plan assets.

(b) Re*ects changes e assumed annual d:scount rates from 9 5% to 8 5% and assumed annuanates or increase m future compensaten ievels from S 50% to The principal differences between these rates and the federal l 4 75% trom Decemoer 31. t 9es to oecemter 3 t .198e eset ey an actuai reom statutoG corporate income tax rates of 40% for 1987 and 46%

l m excess of the espected 10 0% nong term rate of retum on plan assets .

l for both 1986 and 1985 were as follows: 1 The components of provisions for pensio. , for the years 1987 1986 1985 1987 and 1986 were as follows: Ehective mcome tax rate 34 2 % 38.1 % 33 9 %

(thousands of donars) 1987 1986 Equity component of AFUDC wtuch was excluded fr m taxable mcome 88 10.3 13 9 Servce cost $ 55.000 $ 48.000 29 2.0 1.7 Amortizat on of investment ta: credits Interest cost on projected benest obigaton 126,000 118.000 Actual retum on plan assets ate ocome tat ut omdeal ocome tax 00 00) (2S (102.000) (262.000) ereces Me M and tax aceg Urvecognized net gain /(loss) on plan assets (60.000) 112,000 f r wdy rdated deddons (23) (22) 05)

Amortizaton of transmon amount 03000) (13.000) 08 05 Other-net (02)

$ 000 $ 32 federal statutory corporate income tax rate 40 0 % 46.0 % 46 0 %

The effect of the change in accounting for pension costs for Pmvisions for deferred income taxes on timing differences 1986 was an estimated reduction of $27,000,000 in pension between financial accounting and for income tax purposes, costs and an estima ted increase in net income of$ I 1,000,000, net of reversals, were as follows:

or $0.06 per common share, net of amounts charged to Ohousands of dvars) 1987 1986 1985 construction costs and net ofincome tax effects.

Accelerated cost recovery and (13) Post Retirement llealth Care Benefits hberahzed deprecuit on $242.998 $173 311 $16199 The companies provide certain post-retirement health care Deferred energy costs (39398) (30.327) 14 386 benefits for retirees and their dependents and for the overheads capitahzed 6.711 21.625 26.286 surviving dependents of eligible employ es and retirees. Repair allowance 10 845 14.565 15.311 Substantially all of the companies' employes become eligible Spent nuclear fuel dsposal costs (13.483) (9.123) 18.099 Provison for revenue for post-retirement health care benefits if they reach retirement age w hile working for the companies. In 19S0, the reunds (see 3) 00.664 - -

O m ems w (44 W 06M M companies began funding the liability for post retirement health care benefits through a trust fund, and the estimated $132351 $153.961 $24M cost of post retirement health care benefits is being accrued Charged to:

and funded over the workmg lives of the employes. Electne operabons $143.062 $166.939 $236.551 Provisions for post retirement health care benefits for 1987, Other income and deductens 0 0.711) 0 2.978) 4 C89 1986 and 1985 were $32,479,000, $33,011,000 cnd $132351 $153.961 $240640

$30,083,000, respectively, and were based on the aggregate cost method and were equivalent to actuarial normal costs At December 31,1987, the estimated cumulative net amount plus a ten year amortization of the liability at January I, of book / tax timing differences for property placed in service 1980 for retirees and surviving spouses. The actuarial present prior io 1981 for which deferred income taxes have not been values of accumulated post retirement health care benefits at recorded is approximately $ 395,000,000. Except for the effect Januaq t,1987 and 1986, the latest actuarial valuation dates, of reversals of timing differences related to such unrecorded 35

deferred income taxes, net provisions for deferred income (15) Taxes, Except income Taxes taxes have been recorded for all materialincome tax timing Provisions for taxes, except income taxes, were as follows:

differences for 1987,1986 and 1985.

(thousands of dollarsl '1987 1986 1985 At December 31,1987, unused investment tax credits were innois pubhc utsty revenue $194.236 $188.258 $220.465 approximately $72.000,000, none of which will expire prior lHinois invested capitaF t13.464 106,409 98.834 to January 1,2002 if not used. The amount of unused MpaMhty grvss receipts 111,689 104.322 92.595 investment tax credits reflects, w here applicable, the alestate pa 6 8( 407 m reduction of the face value ofinvestment tax credits required nsa w 7 63 under the Tax Reform Act of 1986 as of January 1,1987; - 26[

however, it does not reflect the reduction of the face value of $628.937 $577.995 $586.832 investment tax credits to be effective January 1,1988 under the Tai Reform Act of 1986. It is currently expected that the (16)Ixase Obligations unused investment tax credits remaining after the reduction Under nuclear fuel lease agreements entered into in 1984 and in face value will be utilized by the expiration dates. 1985, the Company may sell and lease back nudear fuel from lessors who may borrow an aggregate of $700,000,000 to in December 1987, the FASB issued an accounting standard finance the transactions. See Note 10 for information which requires an asset and liability approach for financial concerningnes of credit under the nuclear fuel lease accounting and reporting for income taxes rather than the agreemems. Al December 31,1987, the Company's deferred method. The accounting standard must be adopted obligation to the lessors for leased nuclear fuel amounted to by the Company not later than January 1989. The Company $635,376,000. The Company has agreed to make lease has not determined whether it will reflect the initial payments which cover the amortization of the nuclear fuel application of the statement as a cumulative effect of a used in the Company's reactors plus the lessors' related change in an accounting principle in the year of adoption or financing costs. The Company has an obligation for spent as a restatement of prior years' financial statements. nuclear fuel disposal costs ofleased nuclear fuel.

When the new standard is adopted, significant adjustments to Future minimum rental payments, net ofexecutory costs, at balances of accumulated deferred income taxes will have to December 31,1987 for all leases, are estimated to aggregate be made to record additional deferred income tax liabilities $748,100,000, including $278,540,000 in 1988, $185,130,000 related to the equity component of albr/ance for funds used in 1989, $128,340,000 in 1990, $68,180,000 in 1991, during construction which was previously recorded on an $45,720,000 in 1992 and $42,190,000 in 1993-95. The after tax basis, the portion of the borrowed funds component estimated interest component of such rental payments of allowance for funds used during construction which was aggregates $95,760,000. The estimated portions ofobligations previously recorded net of tax, and other temporary due within one year under capital leases are included in differences not previously deferred. Significant adjustments current liabilities and approximated $198,230,000 and also will be recorded for the net reduction in previously $156,502,000 at December 31,1987 and 1986, respectively, recorded deferred income taxes resulting from income tax rate changes and for the recognition ofdeferred income tax (17)Intestments in l'ranium Related Properties effects related to unamortized investment tax credits. The At December 31,1987, the Company and its subsidiaries had Company has not yet determined the amounts of such investments of approximately $156,127,000 in uranium adjustments. It is expected that the additional deferred related properties, equipment and activities. Production from income tax assets and liabilities will be offset primarily by certain of the properties has been deferred due to depressed regulatory assets and liabilities representing the expected market prices for uranium. Management believes that future revenue requirement impact of these adjustments. The uranium will ultimately be produced from these properties at regulatory assets and liabilities will be equal to the prices which will provide for recovery of this investment in adjustments to expected cash flow as the temporary all material respects in relation to the Company's finani.ial differences reverse and are reflected in electric ser ice rates. position and its results of operations.

However, the accounting for and the impact on net income related to these adjustments will depend greatly on the (18) Joint Plant Ownership treatment authorized in future ratemaking proceedings. The Company has a 75% undivided ownership interest in the Quad Cities naclear generating station. Further, the i 36 V

Company is responsible for 75% of all costs w hich are In addition, the Nuclear Regulatory Commission's charged to appropriate investment, operation or maintenance indemnity for public liability cos erage under the Price-accounts and provides its own fmancing. At December 31, Anderson Act is supported by a mandatory industmwide 1937, for its share of ownership in the station, the Company program under which owners of nuclear generating facilities had an investment of $376,102,000 in production and could be assessed in the event of nuclear incidents. Based on transmission plant in service (before reduction of the number of nuclear reactors with operating licenses, the

$117,043f00 for the related accumulated provision for Company would currently be subject to a maximum depreciation) and $28,120,000 in construction work in assessment of $62,500,000 in the event of an incident, progress. limited to a maximum of $125,000,000 in any calendar year.

Legislation is currently pending in Congress which could (19) Commitments, Contingent Liabilities and the significantly increase the maximum liability limit under the Construction Program Price-Anderson Act in the event of a nuclear incident.

Purchase commitments, principally related to construction and nuclear fuel, approximated $1,291,000,000 at December The Illinois Public Utilities Act requires that an audit of the 31,1987. In addition, the companies have substantial construction expenditures and management practices with I

commitments for the purchase of coal and oil under long- respect to a new generating plant be conducted by an term contracts. independent party prior to including the costs of such plant in a utility's rate base. An audit wa: conducted with respect

! The Company is a member of Nuclear Mutual Limited, to Byron Unit i for which further ICC proceedings are in established to provide insurance coverage against property progress on remand from the Illinois Supreme Court. Audits damage to members' nuclear generating facilities. The are in progress with respect to Byron Unit 2 and Braidwood Company would be subject to a maximum assessment of Unit I and an audit of Braidwood Unit 2 is expected to approximately $174,000,000, in the event oflosses. commence in the near future.

The Company also is a member of Nuclear Electric Insurance See Notes 3 and 4, and "Managernent's Discussion and Limited, which provides insurance coverage against the cost Analysis of Financial Condition and Results of Operations,"

of replacement power obtained during certain prolonged subcaption "Liquidity and Capital Resources," for accidental outages of nuclear generating units and coverage information relating to the Company's construction program.

fcr property losses in excess of $500,000,000 occurring at nuclear stations. The Company would be subject to The Company is involved in administrative and legal i

maximum assessments of approximately $33.000,000 and proceedings concerning air quality, water quality and other

$52.000,000 in the event oflosses under the replacement matters. The outcome of these proceedings may require power and property damage coverages, respectively. increases in the Company's future conttruction expenditures and operating expenses.

(20) Quarterly l'inancial Information l Electric Electnc Aver.ge Numter of Eamings Operatog Operatog Net Net income on Common Shares Pe Common Three Months Ended Revenues income income Common Stock Outsteadno Snare (thousands except per share data)

Ma*ch 31.1986 $1.322.325 $218 443 $205.077 $175.630 195.973 $0.90 June 30,1986 $1203,454 $235.408 $213.347 $183.944 197.886 $093 September 30,1966 $1.682.044 $429.753 $418,436 $389.337 199.793 $1.95 December 31,1986 $1.270.688 $159.354 $212.735 $184.030 202.059 $0.91 March 31,1987 $1253.306 $192.586 $200,713 $172.985 203.822 $085 June 30,1987 $1.334,458 $246.309 $22V.077 $192.782 20595 $09 September 30,1987 $1.856031 $510.751 $483.271 $456.380 207.563 $220 Decemter 31,1987 $1.229 987 $246.749 $181.712 $155.504 210 263 $074 37

Report of Independent Public Accountants To the Stockholders of Commonwealth Edison Company:

l We hase examined the consolidated balance sheets and As discussed in Notes 3 and 4, the recovery of the Company's statements of consolidated capitalization of Commonwealth investment in the Byron station and Braidwood Units 1 and Edison Company (an Illinois wrporation) and subsidiary 2 is dependent upon the results oilCC proceedings companies as of December 31,1987, and 1986, and the regarding the allowable costs of those units. Etrective January rebted st tements ofconsolidated income, retained earnings, 1988, a new accounting standard requires immediate loss premium on common stock and other paid in capital, and recognition when a dimllo vance by a regulator of newly changes in 6r.ancial position for each of the three y ears in the completed plant costs becomes probable and estimable.

period ended December 31,1987. Our examinathns were Accordingly, the ultimate recovery of the Company's made in accordance with generally accepted auditing investment in the B; ron and Braidw ood stations is uncertain standards and, accordingly, included such tests of the at this time.

accounting records and such other auditing procedures as we considered necessary in the circumstances. In our opinion, subject to the etTect of such adjustments, if any, as might have been required to the 1987 nnancia!

As discussed in Note 3, the 6nancial statements include statements had the outcome of the matters referred to in the electric operating revenues collected subject to refund two preceding paragraphs been known and to the 1986 pending a determination by the Illinois Commerce 6nancial statements had the outcome of the matter referred Commission (ICC) as to the reasonableness of the costs of to in the second preceding paragraph and the ultimate By ron Unit 1. This determination is to be made pursuant to a recovery of the Company's investment in Braidwood 'Jnit 2 June 16,1987, lilinois Supreme Court decision attirming in been known, the 6nancial statements referred to above part and reversing in part an order of the Circuit Court of present fairly the 6nancial position of Commor. wealth Cook County, Illinois which resersed the October 1985 rate Edison Company and subsidiary companies as of December order of the ICC which granted rate increases to the 31,1987, and 1986, and the results of their operations and Company. The outcome of this matter is uncertain at this the changes in their 6nancial position for each of the three time.

> cars in the period ended December 31, l987, in conformity with generally accepted accounting principles which, except for the change made as of January 1,1986, with which we concur, in accounting for pension costs as discussed in Note 12, were applied on a consistent basis.

k b />e f -

Chicago, Illinois February 5,1988

Board of Directors Officers Managers Division Vice Presidents and Other Executives Jane J. 0'Connor J ames J. O'Connor Robert Becknith K.FA ard Bartels Chairman of the Company Olairman Manager of fuel Southern (Joliet)

Jean Allard Wallace B. Behnke, Jr. Jack S. Bitel IEster J. Degas Partner Vice Gairman Manager of Nuclear Safety Chicago South Sonnenschein Carlin Nath &

Rosenthal(Attorneys) Bide L Thomas Robert L Bolger V illiam II. Dunbar. Jr.

President Assistant Vice President Chcago North Wallace B. Behnke. Jr.

Vice Chairman of the Compan) James W. Johnson John C. BnLoisLI Ant'nony E. Enrietto Albert B. Dick Ill Senior Vice President Assistant Vice President Norsbern (Northbrook) o ny op n Cordell Reed Ilonard R.Carlson Robert D. FrederkLsen duplicating and printing equipment Senior Vice President Manager ofInsestments Rock River (Rockford) and supplies) William J.Cormack Donald A.Schindlbeck l Rs)mond P. Bachert l

Donald P.Jacobs Vice President and Comptroller Manager of Public Affairs Western (lombard)

Dean. J. L Kellogg Graduate School of Management, liarlan 31. Dellsy leais O. DelGeorge Kenneth L Graesser Northwestern University Vice President and Assistant Vice President General Manager George E. Johnson M illiam 11. Downey Oainaan and President Dennis P. Galle Operating Manager Nicholas J. Kalistanakis Johnson Products Company. Inc. Vice President General Manager (Personal care produtts and Paal J. Fenoth.o . Nuclear Stations J. Stanley Graves Manager of Computer Services cosmetics)

Vice President Richard E.VanDerway Itiney k.apakk Charles G. Ilarnach General Purchasing Agent Chairman of the Board and Thomas J. Staiman Manager of Marketing President VKe President Chicago Pacific Corporation Arther W. Kleinrath (Consumer products) Robert J. 5f anning Executise Assistant j "I ' #"I Byron lee, Jr.

President and Chief Esecutise Donald A.Petkus James J. Stale)

OiTicer Vice President Assistant Vice President Nuclear Management and I George P. RifaLes Daild W. Nocchi Resources Council "I '"'8" """

Thamas L Startin. Jr.

President Ementus. Illinois Ernest St. Roth Daiid A.Schola Institute of Technology Vice President and Treasurer Assistant Vice President Fdxard A. Slaso" J. Patrkk Sanders Waher J. Shemski Vice President Research Vice President Manager of Quahty Assurance Ameco Corporation John J. Viers Stichael J. M allace PatrkL G. R)an President and Chief Esectstise Vice President Manager of Projects and 06cer Construction Sen wes gi,,, g g, wis;,i Aon Corporation Secretary Norman E. Wand Ae (Insurance holding company)

Assistant Vice President A. Dean Smift President Executise Senice CorpsofChicago (Nonprofit corporation of retired executaes prosiding soluntary management consultation to nonprofit agencies)

Bide L Thomas President of the Company Evgene P. Wilkinson Former President and Chief Exenitive 05cer Institute of Nuclear Power Operations ( N on pro fit orga niration dedicated to quality constructen and safety in the operation of nuclear power plante 39 i

-_ _ _ _ _ _ _ _ . _ _ _ . _ _ I

Othee infoemation a Slaareholder Inquiries Transfer Agents Inquiries about shareholder accounts, dividend payments The First National Bank of Chicago' and the dividend reinvestment and stock purchase plan Stock Transfer Division should be directed to Shareholder Services as follows: Mail Suite 0122 Chicago, Illinois ~ 60670-0122 By Telephone:

In the metropolitan Chicago 312 Area Code, call 294-3186 or Manufacturers Hanover Trust Company' use these roll.ftcc numbers: Shareholder Services in Illinois . . .1 800-341-4321 P. O. Box 24935 in other states .l.800 253-1122 Church Street Station New York, New York 10749 By Stall:

Commonwealth Edison . The First National Bank of Boston Attn: Shareholder Services Shareholder Services P. O. Box 767 P. O. Box 644 Chicago, Illinois 60690-0767 Boston, Massachusetts 02102

'Also warrant agents Other Inquiries Questions about stock transfers or dividend reinvestment Diildend Reiniestment Agent plan accounts should be directed to the Transfer Agents or The First National Bank of Chicago the Dividend Reinvestment Agent.

Shareholder Investment Service Khil Suite 0134 Annual Slecting Chicago, Illinois 60670 0134 The annual meeting of stockholders will be held Thursday, 1 800-634-7490 April 14,1988 at 10:30 a.m. at the Chicago Hilton and Towers. Notice of the meeting and proxy materials will be Registrars mailed to stockholders in March. Continental Illinois National Bank and Trust Company of Chicago" Form 10 K and Financial Reslew Shareholder Services The 1987 Form 10.K Annual Report to the Securities and 30 North LaSalle Street Exchange Commission and the 1987 ten year Financial Chicago, Illinois 60697 Review will be available in April. A copy of both may be obtained without charge from Klaus H. Wisiol, Secretary, The Hrst National Bank of Chicago *"

Commonwealth Edison, P. O. Box 767, Chicago, Stock Transfer Division Illinois 60690 0767. Mail Suite 0122 Chicago, Illinois 606704122 Morgan Shareholder Services Trust Company 30 West Broadway New York, New York 10007 t

State Street Bank and Trust Company Corporate Trust 225 Franklin Street Boston, Massachusetts 02110

" Common stock only

"' Preferred and preference stock o ,1y 40

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-.; _ One Fir:t N ional Plan Chicago, Illinois 4

Address Reply to: Post Offce Box 767 Chicago, Illinois 60690 0767 February 23, 1988' Director - Division of Reactor Licensing Office of Nuclear Reactor Regulation U. S. Nuclear Regulatory Commission Washington, D. C. 20555 Gentlemen:

Pursuant to the provisions of_Section 50.71 of 10CFR, there is enclosed a copy of our 1987. Annual Report for each reactor, as follows:

Dresden Station: 50-10 50-237 50-249 Quad-Cities Station 50-254 50-265 Zion Station 50-295 50-304

]

LaSalle County Station 50-373 50-374 Byron Station 50-454 l 50-455 Braidwood Station 50-456 50-457 ISincerely/

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K aus . 1 Secretary qr, 1O

. _ _ _ _ _ _ _ _ _ _